As the owner of a transportation company, you might feel like you’re playing a constant waiting game when it comes to being paid. Receiving payment for an invoice may take weeks, even months. Unpaid invoices for moving of freight and goods can wreak havoc on your cash flow and limit your business’s growth, which may have you wondering whether transportation factoring companies can help.
Transportation factoring companies are also known as freight factoring companies. This type of finance allows you an advance on your outstanding invoices, and they collect the payment from your customer when the invoice is due. Additionally, transportation factoring companies can often take the risk of nonpayment off your shoulders
Finding the factoring company for your transportation business is key, especially since most drivers and truck owners develop a long-term relationship with the factoring company they choose to work with.
Chances are, once you find the right factoring company, you will stay with the lender for a long time. Factoring companies are also different in terms of price, so comparison so its important for getting the best deal.
Most factoring companies deal with the full range of transport, freight, trucking and haulage companies. Courier services are often also included within the same sector as these are also suited to the use of invoice financing.
Here’s your ultimate guide to finding the right transportation factoring company for your business:
How Transportation Factoring Companies Work
Transportation factoring companies work by buying your business’s accounts receivables at a discount. After they have purchased the invoice, the invoice belongs to them. This means that the factoring company will chase the customer for their invoice payment.
Transportation invoice factoring works like this:
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You provide goods or services to your customers in the normal way.
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You invoice your customers for those goods or services.
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You “sell” the raised invoices to a transportation factoring company. The factoring company pays you the bulk of the invoiced amount immediately, typically up to 80-90% of the value, after verifying that the invoices are valid.
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Your customers pay the lender company directly. The factoring company chases invoice payment if necessary.
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The factoring company pays you the remaining invoice amount – minus their fee – once they’ve been paid in full.
Transportation Factoring Companies Pros and Cons
Transportation Factoring Companies Pros
Stabilises your cash flow Lets you cover expenses as you’re waiting for your customers to pay Fast funding option More flexible than a traditional loan Easier to qualify for than a traditional loan Some factors provide fuel cards, free customer credit checks, and other services in addition to factoring.Transportation Factoring Companies Cons
Recourse factoring means you’re responsible if the customer doesn’t pay the invoice Depending on the factoring arrangement, your clients might find out that you’re factoring their invoices Client relationships can be impacted if the transportation factoring company has bad collection practices Some factors have minimum monthly volumes or contract lengthsWhen should a Transportation Factoring Company be used?
A transportation factoring company should be used when you routinely have a lot of invoices outstanding and your cash flow is suffering because of it.
As an example, say your transport business sells on 30-day payment terms. Most of your debtors will pay within 30 days, some may require chasing, while others may go over the limit and require more persistent effort on your part.
That 30-day of revenue might represent the bulk of your potential cash flow, but you can’t actually use it. Transportation factoring allows you to release that cash almost immediately, or at least a large part of it. You could use that money to:
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Bridge short-term expenses
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Repay a loan
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Take advantage of seasonal business opportunities
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Or for any reason for which cash flow might otherwise be a constraint
Costs of Transportation Factoring
The cost of a transportation finance facility will vary significantly between both providers and dependant on your your individual circumstances.
The higher the turnover, generally the lower the cost as a percentage of turnover. Typical factoring fees include:
- Setup/Arrangement Fee
- Service Charge
- Interest/Discount Fee
The service charge usually accounts for the majority of the cost. Some lenders may just charge a single fee incorporating all 3 of the above.
Other Potential Fees:
- Bad Debt Protection (BDP)
- Refactoring Fee
- Credit Note Fee
- Annual Review/Renewal
- Survey Fees
How to apply for Transportation Factoring?
Fortunately, there are a number of transportation factoring companies in the UK. We have a number of different finance solutions for transportation businesses.
If you think your business may benefit from a transportation financing please feel free to contact us via the enquiry form.
Seasoned professional with a strong passion for the world of business finance. With over twenty years of dedicated experience in the field, my journey into the world of business finance began with a relentless curiosity for understanding the intricate workings of financial systems.