Trucking companies often face cash flow problems due to the high costs of running their businesses. Fuel prices, tire replacements, and breakdowns can all lead to cash shortages, especially when you have to wait 30 to 90 days to get paid by your customers. One solution to this dilemma is freight factoring, also known as truck factoring. Here is some information to help you determine if this financing option is a good fit for your business.
The Basics of Truck Factoring
Truck factoring is a method of funding that helps to cover the cash flow gap between the time you complete deliveries and when your customers pay you. Traditional types of financing such as loans or credit cards are impractical and expensive in these situations, so many companies rely on truck factoring to keep cash flow strong.
How Truck Factoring Works
Finance companies that handle truck factoring purchase account receivables at discount prices and are then responsible for obtaining payments from your customers. After a freight delivery, you apply to a factoring company, which runs a credit check on your client to determine if they qualify for financing. Upon approval, you forward the account receivable and other documents, and the factoring company processes your application, buys the invoice, and sends you your payment. When the bill comes due, the factoring company collects the funds from your customer.
Advantages of Truck Factoring
Because the time between application and approval is brief, truck factoring provides quick solutions to financial emergencies. Even trucking businesses with poor credit ratings can qualify for this form of financing because factoring companies are more concerned with the creditworthiness of their clients. Although you may not qualify for traditional loans, truck factoring offers you access to funding that can strengthen your cash flow so you can handle running costs and take on more work.
For more advice on truck factoring, get in touch with Rexford Commercial Capital.