Financing a Small Transportation Carrier With Freight Factoring

Finding financing has always been challenging for small trucking companies and owner operators. Most small carriers are owned by drivers who earned their stripes the hard way – through hard work and experience. And now, they are putting that experience to good use trying to build a business.

The problem is that most owner operators don’t have a lot of money. They run lean operations with limited resources, and every dollar is valuable. As a result, small trucking companies are often unprepared to handle one of the greatest challenges of operating a carrier.

Slow payments create cash flow problems

Most shippers and brokers don’t offer quick-pays. Rather, they pay their freight bills in 30 to 60 days. They demand the option to pay slowly because it’s good for their cash flow. As a small business owner who wants new business, you don’t have many options. You can take it or leave it. Unfortunately, both are bad options.

If you do offer terms to your client, even though you can’t afford it, you could run out of money. You won’t be able to pay for fuel, repairs, and other business costs – at least, until your shipper pays. And if you don’t offer terms, you will likely lose the client. This option is bad for obvious reasons. No one wants to be in the business of losing clients.

Solve the problem by financing your freight bills

One way to handle slow-paying clients is by factoring their freight bills. This solution allows your client pays on their usual terms. However, a finance company advances funds to your carrier using the invoice as collateral. This advance provides you with immediate funds that can be used to cover business expenses.

By using this tool correctly, you can start offering terms to customers without having to worry about their slow payments. More importantly, you can start taking on new clients and driving more loads. For more information about the program, read “What is freight bill factoring?”

Simple transactions

Freight factoring can be ideal for growing carriers. Transactions are relatively simple. Most owner operators and small carriers opt for a single-instalment transaction in which they sell invoices for a single payment of 95% to 97% of their gross value.

Larger companies (with three trucks or more) may opt for a two-instalment transaction. The first instalment covers 90% of the freight bill and is advanced as soon as the load is delivered and accepted. The second instalment covers the remaining 10% and is rebated once the shipper pays in full. Since two-instalment transactions have a lower advance, they also tend to cost less.

Works with fuel cards

Most factoring plans work with fuel cards and can deposit funds to your existing account. Many companies offer their own fuel cards, which can have additional discounts.

Credit checks

One benefit of working with receivables factoring companies is that they help you check the creditworthiness of your brokers and shippers before you take on a load. This assistance helps ensure that you provide payment terms only to clients who deserve it and have a high chance of paying on time.

Growth flexibility

One important advantage of factoring freight bills is that the line can adapt to your growth, as long as you are hauling loads from creditworthy clients. The line can be increased to match your sales, often with little additional underwriting. This feature is important for companies that are growing quickly and need liquidity to pay their expenses.

Qualification

Qualifying for freight bill factoring is easier – and faster – than qualifying for a business loan. The most important requirements are to have good invoicing practices and have clients with good commercial credit. This last point is important because your client’s credit is what the factor takes on as security. Additionally, your invoices need to be free of encumbrances and your carrier should not have serious tax problems.

Costs

The cost of the line is determined by your volume, the credit quality of your shippers, and whether you are using a single-instalment transaction or a two-instalment transaction. Costs can range from 1.5% to 5% based on this criteria.

Get a factoring quote

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