Factoring is a financial tool that aids you to get immediate money against your credit sales so that you do not need to wait too long before it matures. Factoring has been a part of the business sector for hundreds of years and has acquired a new shape with the changing needs.
Cash is made instantly accessible by a factoring company, which in normal circumstances, would take months to recover. The factoring company disburses the cash immediately against the invoice, which is kept as security.
Truck factoring is the process in which truck factoring invoice firms purchase invoices only from the trucking and transportation firms. The cash that these trucking firms, big or small, get from factoring companies helps them to regulate their work with a smooth cash flow. In the trucking companies, cash comes only after a stipulated time of 60-90 days. In this scenario, factoring comes as a welcome respite to these companies where the deficit of money might hinder the smooth working of the firm.
A fee charged by these factoring companies which varies from 1.5% to 7% depending upon the volume of invoices factored and time taken for the same invoices to get cleared. This might seem a high fee, but when one looks at the larger picture, then the benefits one gets, regarding cash flow and saved time and energy, is very reasonable.
The main advantage of factoring invoices is that the company gets the much-needed cash flow to run the business smoothly. This is done after the negotiation of the fee of factoring firm is decided, and both parties have agreed upon a final rate. Once finalized, the factoring company pays around 60-90% of the invoice as the advance, decided earlier. Thus, the other firm gets its cash in hand.
When a firm starts factoring its invoices it saves not only on time but also on the number of employees who can then be directed towards other important jobs rather than employing them to extract dues from clients.
As trucking firms have ready money, it also boosts their buying or procuring power, enabling them to make better deals. They are also able to get benefits of bulk procurement discounts. Ready cash flow also helps in expansion through marketing and production and subsequently increasing sales. This comes as an overall boon for the firm that has chosen to factor for its freight bills.
A great benefit of factoring freight bills is that it provides the company with a detailed and clean portfolio of its accounts receivable. Ready cash improves the financial statement and saves a company from falling into a debt trap. Moreover, there is no need to look back to traditional banks for any financial assistance as the factoring companies provide the required amount of cash flow for the smooth expansion of business. This way the company is saved from paying the high interests rates charged by banks on loans.