The trucking company owners out there know that keeping the finances of the business steady can be really hard task when working with various clients who often postpone or miss payments. On the other hand, consistent cash flow is really important because of the serious costs related to providing truck services. While the company is waiting for payment of the latest invoices, it has to pay on its turn – fuel, taxes, payroll, uniforms, insurances, licenses and fees, support and maintenance for the trucking software system, occasional repairs of the fleet etc. etc. Because of all the troubles this constant discrepancy in incoming and outgoing payments causes, there is a need of a practical solution and, fortunately, this solution has been around for quite a long time – freight factoring.
Today most owners of trucking companies who have been experiencing financial problems are aware of freight factoring and its advantages, but may lack some experience in choosing a proper factoring company. Of course, when it comes to the finances of your trucking company, you would not want to trust any company without serious proof that a cooperation will be safe, beneficial and smooth. Therefore, the aim of this article is to prepare you for the process of choosing a financial partner that will help you stabilize your cash flow and run your business without having to wait for the next payment. Generally, the appropriate freight factoring company will answer to a number of the criteria below, so make sure to research, ask and find out more before signing any contract – this may save you a lot of money, time and troubles.
As you probably know, every freight factoring company will charge you for its services. Therefore, it is crucial that you compare the rates of the different companies you consider to work with. Of course, there are also other things you should pay attention to, but rates are really important, because the payment you receive from a given client is not net profit – you will have to use part of it to pay your expenses and fund future projects. This means that if the rates of the freight factoring company are too high, you may end having no profit at all, which makes providing the service meaningless in the first place. In short, when looking for a company to help you with your finances, make sure that company offers competitive rates for the services it provides.
When you are dealing with the finances of your trucking company, you are probably expecting to work with a freight factoring company that knows what it takes to provide seamless services. New and inexperienced financial companies may find it hard to work with you, especially if the co-operation requires really large sums. The best solution of your trucking business, especially if it provides services to a great number of clients, is an experienced transportation factoring company or financial institution that has the know how and the solidity to provide services of this variety. Of course, all necessary and required licenses, registrations etc. are non-negotiable and absolutely essential for you to even consider working with a given company. An advantage, of course, will be if it specializes in freight factoring – you can check if it has been endorsed by any Trucking Association and knows how to deal with a trucking business.
Even if the trucking factoring company has the necessary experience and offers competitive rates, you will have to carry out your small research that will show you whether its former clients are satisfied with its services. If you know people who have worked with this company, make sure you ask for their opinion and feedback. And, of course, don’t forget to check on the Internet – nowadays this is the easiest way to check the reputation of any company. If there have been some fouls in the past of the company you are researching, they are sure to come out in a simple web search. This is a basic way to protect yourself from inadequate services – choose carefully if you want to become one of the many happy customers, not join of the dissatisfied or angry ones.
The terms and conditions of the different trucking factoring companies vary, but it is worth noting that some of them will agree to work with you only if you agree to factor all of your clients. Of course, this may not be what you want as some of the customers are bound to pay on time and it is no worth paying rate to the freight factoring company for them, too. So when you are choosing a freight factoring company, make sure to check if there is a requirement for a minimum volume or number of invoices per month. On the other hand, if it is better for you to know that you have a steady cash flow that you can easily calculate (just subtract the freight factoring company fee), you can sign for factoring all your invoices – this is your choice, but make sure you calculate how much it would cost you before deciding to go for it.
Imagine hiring a company to factor your invoices and waiting with days and weeks to get the money – it is meaningless. Before you start working with a particular transport factoring partner, you will need a prove that you will get the money in 1-2 days, if possible – in under 24 hours. Make sure to ask about the payment conditions and the ways of transfer – cash, bank transfer, online transfer, check etc. Then consider the best options for you – if you conduct your business online, maybe it would be easier for you to get an online payment. If you are using more traditional financial system a direct debit or check may be the most adequate decision.
Before you get to the phase when you will receive money, however, you will also need to be approved by the company you have chosen. Some freight factoring companies may check the credit history of your company and the credit files of your customers – this is to be expected because if one or more of your customers fail to pay, the company will endure significant losses. So all this is understandable, but you will have to make sure that it will be carried out as fast as possible. Find out how long does it takes for a company to be approved and decide if you have that time or not.
Recourse vs. Non-Recourse
When it comes to freight factoring, it is important for you and your company to find out whether financial partner you want to deal with offers a recourse or a non-recourse agreement. Recourse agreement means that you will have to buy back all the invoices that are not paid after a certain period of time. On the other hand, non-recourse agreement is one in which the transportation factoring company takes all the risk and you don’t bear any responsibility about the payment after you sell the invoices. Again, it is your decision, but have in mind that a non-recourse agreement is absolutely risk-free and can save you a lot of money and problems in case of a bad client.
Once everything above is discussed and agreed on, you will start actually working with the freight factoring company. This means that they will have to provide you with superb customer service. The best thing you can have is 24/7 contact with them so that you can find out what exactly happens with your money any time you want. It would be good if there is someone who is at your disposal and can arrange a face-to-face appointment or a phone conversation whenever you need information about or help with the factoring. All in all, you are not looking for a 5-star hotel, but you still need the staff of the company to be there for you when you need them.
In short, there are a lot of factors to consider when choosing a freight factoring company, but it is essential that you skip none of them because they will guarantee you appropriate service at competitive rates. If you ever reach the point of your business when you need factoring, make sure to take your time and make some good research on the different options you have. Only this way you will be able to stabilize your finance, provide your trucking company with steady cash flow and get back to business without bothering about money.