What Factoring Companies Can Do

The United States is home to an enormous manufacturing complex, producing goods as varied as furniture, cars, books, computer parts, and kids’ toys. But it’s not enough to merely produce those finished goods, or foodstuffs from farms. The United States is also home to a robust transportation network for delivering freight, and many carrier companies (most of them small) deliver these goods for their shipper customers. This is a big business and employs many Americans, and some 12 million trucks, planes, freight cars, and ships are available to transport all of these goods all year round. Carriers can do a lot of work, but sometimes, they need assistance with their cash flow while waiting for an invoice payment from their shipper customers. This is where freight factoring services such as Advance Business Capital and its peers come in. They provide freight capital factoring, an essential money lending service for many small carrier companies. How might invoice advance loaning work?

Carriers and Their Work

As mentioned above, most carrier companies are on the smaller side, and they often have a modest but hard-working fleet of trucks to offer. Carriers make use of third parties such as freight brokers to arrange deals with shipper clients, and this is very helpful. But carriers also have to charge invoices to their shipper customers, and even if paid on time, these invoice payments may not arrive for 60-90 days or so. And naturally, some invoices are paid late. Carriers work domestically and may work for international shippers as well, and this is when international factoring may be used. The United States performs a lot of ground-based trade with Canada to the north and Mexico to the south, and the U.S. stands as Canada’s biggest trade partner. Small carrier companies have their own expenses to cover while waiting for shipper customers to pay their invoices, so during this wait, freight capital factoring may be done. What does freight capital factoring entail?

Working With Business Factoring Companies

After a carrier company has made use of a freight broker service to arrange a deal with shippers, that carrier will dispatch its trucks, planes, trains, or any other vehicles to make that delivery. And once that deal is made, the carrier company will charge the shipper customer an invoice, a promise of payment. But as mentioned earlier, such invoices may not arrive for a few months (even if paid on time), and carriers tend to be small and don’t have deep cash reserves to fall back on during that wait time. Without business factoring work, a small carrier might in fact face bankruptcy because it has minimal cash reserves. Thus, after a carrier has charged an invoice to a shipper customer, it will reach out to local business factoring companies who can provide a loan, given the carrier’s business credit is sufficient for that loan.

Working With Factoring Companies

Once a carrier has hired a factoring company, that factoring company will purchase the rights to collect 100% of that invoice’s value. At this point, the factoring company will provide the carrier client with a large up-front loan, often worth 70-80% of the outstanding invoice’s value. This timely loan allows the carrier to cover its expenses and smooth out its cash flow. The carrier may have expenses such as truck repair or refueling, staff salaries, advertising costs, and truck payments, among others.

Once the shipper customer makes the invoice payment (late or not), the invoice factoring company will collect 100% of its value, as arranged earlier. Now, with the payment made, the factoring company will provide the carrier with another, more modest loan. The total loans made to the carrier may add up to 95-98% or so of the invoice’s value, but not 100%. The invoice factoring company keeps the remaining percentage to itself as a fee for the loan it made, and this is the source of its income. Using such freight capital factoring means that the carrier company will sacrifice 2-5% of the invoice’s total value overall, but smoothing out its cash flow with the up-front payments is usually worth this investment. A small carrier might face serious money issues if it doesn’t get a loan while waiting for that invoice to be paid.

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