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What is Freight Bill Factoring?

Transportation companies can be difficult to run because they are financially demanding. To succeed in the industry you need to be able to juggle the constant battle between revenues and expenses.

Expenses can be constant, as you need to pay your drivers, fuel and repairs on a regular basis. If you work with shippers who pay quickly, this will not be a problem. You can basically use the money from their invoice payments to cover your expenses. However, if your shippers do not offer quick pays, you will need to pay those expenses yourself and wait until your client pays. Most clients pay their invoices in 30 to 60 days which can create a problem.

The cash flow problem

If your clients pay slowly, you may run into financial problems. Few transportation companies have enough cash reserves to pay for their expenses and grow the business, while waiting for payments.

At best, you will grow slowly or your transportation company will remain stuck in neutral. And if you don’t watch your cash flow carefully, you could run into problems and overextend yourself. This can spell disaster.

Finance freight bills – a solution

In Canada, you can solve this cash flow problem and start growing your transportation business by financing your freight bills. This program provides many of the benefits that you would get from quick paying clients, but without requiring them to pay faster.

It works by partnering with a factoring company, who finances the freight bills from creditworthy shippers and commercial clients. The solution provides you with immediate funds that can be used to pay for important business expenses. The transaction settles when the shipper pays the invoice in full, on their usual deadline.

How does it work?

There are two ways to finance a freight bill – a single installment transaction and a two installment transaction.

Single installment transactions are often used by small carriers that have up to three trucks. The invoice if financed as soon as the load is delivered. The finance company provides a single payment that ranges from 95% to 97% of the gross value. The portion of the invoice that is not advanced is kept by the factor as a finance fee.

Two installment transactions are used by larger transportation companies and by freight brokers. The first installment covers 90% of the freight bill and is advanced as soon as the load is delivered. The remaining 10%, less the fee, is rebated once your customer pays in full. Fees for two installment transactions tend to be lower than fees for single installment transactions.

Advantages

Financing your receivables has a number of advantages. The most important one is that it provides financial stability to your company. It enables you to stop worrying about slow paying clients, and provides the funds to operate your company.

The facility is designed to grow with your company. It will adapt and increase as your haul more loads – as long as your invoices qualify for financing. This can be a very important benefit for companies that want to focus on expansion.

Qualification

Qualifying to finance your transportation receivables is relatively easy. You need to work with credit worthy shippers and commercial clients. This is critical because their freight bills are the collateral that backs the transaction. Also, your transportation company should be well organized, run by someone who understands transportation, be free of major legal/tax problems and have unencumbered accounts receivable.

Is this solution right for you?

Factoring can be the right solution for you if you have cash flow problems. Specifically, it can resolve financial problem that stem from slow paying shippers and clients.

Get more information

Are you looking for factoring? We are a leading factoring company in Canada and can provide high advances at low rates. For information, get an online quote or call (877) 300 3258.

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