| An Introduction to Freight Bill Factoring.
The freight industry is traditionally one of most difficult forms of commerce when it comes to managing finances and dealing with cash flow. The reason for this is simple, day to day operational overheads are high, yet every customer expects to receive an invoice with anything from 30 day to 90 day terms. This means that the freight company needs a high amount of working capital at all times in order to pay its drivers, maintain its fleet, and operate the business. Fortunately, there is a simple and cost-effective way to alleviate this problem in the form of freight bill factoring.
The benefits of freight bill factoring
- No more confusion over when a freight bill will be paid, the freight bill factoring provider ensures that all payments are received promptly.
- Increased confidence in customers, safe in the knowledge that the freight bill factoring provider is shouldering the risk. This allows to business to expand its client base safely.
- Increased cash flow, meaning the business has funding on hand to pay for repairs and fuel, and to pay the salaries of its drivers.
- Decreased administrative overhead as the freight bill factoring provider will handle collections on behalf of the company.
Freight bill factoring - How does it work?
The process involved in factoring a freight bill is extremely straightforward. The business simply presents the invoice to the factoring company, who will then advance a percentage of the invoice value to the business (typically 90% or more). Once the factoring company has collected on the invoice, any outstanding funds will be forwarded, minus the invoice discount, which is the small percentage the factoring company retains as their fee. Some factoring companies apply a flat monthly fee as opposed to a percentage of invoice value.
Establishing a working accounting system, which incorporates the services of a freight bill factoring company is straightforward, and the actual application process to the factoring company is simple and quick. The company's financial situation is not considered during the application process, as this is not a loan in the traditional sense, simply the sale of a financial asset to a third party.
As we can see, freight bill factoring is an exceptionally good way for a freight provider to ensure that their working capital remains actively working, instead of being tied up in outstanding accounts receivable invoices. This enables the business to operate more dynamically, with fewer restrictions, providing them with security in the knowledge that their outstanding debtors are no longer their concern. |
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