How Freight Factoring Works
Most of the times the freight companies find themselves with problems of poor flow of cash since most of their customers do not pay their bills in due time. The freight factoring companies are patient with the customers until they come and off their bills. Freight companies have many expenses like the fuel cost, maintenance cost, and paying the wages. There are some of the expenses that cannot wait for long without being attended to like the fuel cost. Those urgent expenses are the reason why the company must have a ready capital. Some of the trucking and shipping customers interrupt their cash flow because they have pending bills that have to be paid by their clients.
The issues of poor cash flows leads to depending on the freight factor. Factoring, in other words, is a short-term loan that uses the invoice as the collateral. When the trucking company delivers goods to their clients they sell the invoice to the freight factoring company. The freight company after buying the invoices they pay the shipping company in installments. They only pay the shipping company the full invoice after the client has settled the bill.
The factory company pay themselves by deducting some amount of money from the invoice. The factoring charges vary depending on factors like the worth of the credit of the customer, credit, the amount to be factored and the average time the invoices are paid. If you want to know if your company needs factoring help there are some considerations you have to make. The factors include the business cash flow, terms of payment of each account, the amount of money owed and how loyal your customers are in paying the bills. You will only know if your company is eligible for the freight factoring after you put all the factors into consideration.
Ensure you deliver your services as per the specification of your customer and ensure they accept the services. The freight factoring companies helps companies that have insurance cover and a motor carrier authority. The factoring company first makes sure that your customers have an excellent commercial credit and can pay the bill at the time they stipulate. The another consideration they put before helping any company is to check if they have legal problems. When selecting a factoring company to consider their prices before you approach them.
You may want to compare their application fees, their monthly minimums and their advance rates with other factoring companies. It is important if you find out what they do with the unpaid bills. Your research will prove to you that some of the companies accept the full responsibility of the unpaid bills. There are those that require their clients pay the invoice within a given period while others will ask them to exchange the paid invoices and with the unpaid ones.