The Factoring Force BIG Blog

Perhaps there is no industry so blatantly affected by rising fuel costs as the trucking industry. Smaller companies and independent owner-operators are challenged every day to quote rates based on a wildly fluctuating diesel market. If you are quoting based on $4.50/gallon and diesel rises to $4.75 before you have even started the job you are up a creek. Compounding this problem are slow paying customers who may stretch a company or driver out 30, 60 or even 90 days before paying their bills.

One approach that many trucking companies use to keep cash flowing despite slow paying clients is freight factoring. Essentially, a trucking company will sell its outstanding invoices to a freight factoring firm for about 90% of the amount due. This provides the trucking company with cash immediately instead of having to wait. The factoring firm then becomes responsible for the debt and the trucking company can remain solvent. Once the invoice is paid by the client, the balance is forwarded to the trucking company less the factoring company’s fee which typically ranges from 1.5% to 3%.

Cash flow is the life-blood of a small business. No cash, no money to operate. Freight factoring is one method trucking companies can use to stay afloat during economically volatile times.

A good overview of freight factoring is presented here.

If you want to gauge the condition of the economy, just take a look at the trucking industry. When truckers are hurting, everyone is hurting…or will be soon.

Trucking companies are cash spewing machines. Every single day, company trucks and owner-operators line up at the pump to fill up with $4/gallon or higher diesel. Add in maintenance, tolls and salaries and it’s all some companies can do to keep things going each day. That is why factoring receivables is so critical to the trucking industry.

With the recent problems in the financial sectors, credit has been hard to come by. Even if a company decided that they wanted to take some sort of loan, there are not many banks willing to provide financing. That is why freight factoring is so critical during an economic downturn.

A blog I found focused exclusively on freight factoring provides some pretty relevant insights into the difficulties faced by truckers and the increasingly important role of freight factoring services. Give the Freight Factoring blog a read for some good info.

One of the obvious benefits of utilizing an invoice factoring company is to help your business maintain a positive cash flow. I read a blog post today that identified scenarios whereby factoring receivables may provide asset protection and offer tax advantages.

I’ll avoid repeating all of the details here, but the blogger presents a scenario whereby a doctor with a successful medical practice protects his assetts from potential lawsuits by “selling” those assets to an invoice factoring company. Since the practice no longer owns the receivables they are no longer subject to recoupment as part of an insurance settlement.

The author also outlines the circumstances by which this physician creates a favorable tax situation by using the factoring to fund insurance coverage.