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How Factoring Financing Can Help Your Intermodal Transport Business

Published 9/27/2012

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What Factoring Can Do for Your Intermodal Business

The answer to being able to react quickly to demands in shipping activity is factoring. Factoring is the perfect lending solution for non-asset businesses, like intermodal transportation, that do not have collateral for typical bank financed loans. Factoring is a great resource for successful intermodal businesses that need to increase their cash flow while they wait for previous shipments to pay for their space. Waiting for those payments can take anywhere from 30 to 90 days.

Often referred to as accounts receivables financing, factoring receivables or invoice factoring, this kind of financing uses your accounts receivables as a form of collateral for your loan. You can sell your accounts receivable invoices to an investment company which then loans you money based on the amount of your invoices.

Challenges we face factoring the intermodal industry

Accounts receivable financing gives you a flexible credit line that can be used in any way that can improve your Intermodal business. Getting funds from slow accounts receivables frees up cash for profitable ventures rather than allowing these accounts to stagnate and keep your company from growing.

Intermodal transportation is a type of international freight system that permits shipments by sea, highway, rail, and air. When the shipment is sent by sea (and factoring is your primary source of funding), the factoring company's client is responsible for retrieving the container from the steamship. From there, the transaction may take on one of three forms:

1st Form

  • A delivery order (DO) is transmitted to a trucking company that specializes in hauling containers.
  • The trucking company receives the delivery order and their driver picks up a container from a shipyard.
  • Then the driver receives an interchange (in/out) ticket that shows that he picked up the correct container. This interchange ticket shows the container number and (typically) the chassis number for identification.
  • The trucking company hauls the container to its final destination.
  • The receiver then signs a bill of lading (BOL) from the trucking company that the container is accepted in good condition.

2nd Form

  • The same scenario as above except the trucking company hauls the container to a rail yard where the container will be transported to its final destination. Instead of a signed bill of lading, a rail ticket is then sent to the factoring company as proof that the container was dropped off at the rail yard. This ticket includes the container number for identification.

3rd Form

  • The trucking company receives a delivery order from the steamship line to bring the container(s) back to their port of origination. These containers are assumed empty and returned for future use.

For more information about factoring transportation see Factoring Companies for Trucking

Turn High Demand into High Cash Output

This is a terrific business arrangement for intermodal transport companies that need to act immediately in response to fluctuations in transportation and commerce. Finally, there is a finance arrangement that allows you to take advantage of periods of high demand without waiting for payment on your accounts. This gives you the cash you need to buy up more space on trains, planes and ocean carriers when the need is the greatest, allowing you to profit the most from your business.

The best thing about accounts receivable factoring is its flexibility. It is the most suitable financing for intermodal transport because it gives you an increasing line of credit as your business expands with the health of the economy. You are no longer dependent on the health of the business that is shipping its products. You are paid as soon as you sell your invoices to the financing entity.

Factoring is popular throughout the U.S., Canada and Europe. Accounts receivable financing is practiced by intermodal companies located in intercostal areas in the U.S., such as Long Beach, California; Galveston, Texas; Miami, Florida; and New York City.

Is Your Business a Candidate for Invoice Factoring?

Before a finance company will invest in becoming your factoring company, it has to ensure that you are a viable intermodal business. The finance company examines your general economic status, the business savvy of your owners and managers, the soundness of your bookkeeping practices and the economic stability of your customers.

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Spreadsheet Accounting Makes It Easy

Since most of today's companies use some form of computerized accounting, they have no problem passing the factoring company's accounting practices test. In fact, the computer has made factoring much easier in many respects. Most intermodal transport companies bill their customers and keep track of their accounts receivables using QuickBooks or Excel. These spreadsheet programs are a great way to keep track of accounts receivables and make it simple to hand off a copy of your invoices to the factoring company.

The factoring company can use your Excel or QuickBooks spreadsheets to validate the amount of your accounts receivables get the company names and addresses of your customers, and see at a glance which invoice are past due. The computer simplifies the entire factoring transaction and ensures that you will receive your money as quickly as possible.

Get Your Cash Fast

The time it takes to set up your factoring account is only about one week. Once the factoring company buys your invoice, you can expect to receive payment in two separate installments. In your first installment, you receive an immediate advance which is payable as soon as you sell the financial institution the purchase order.

Another advantage of accounts receivable factoring is how quickly your loan can be set up. In most cases, you can receive your payment in about one week. When the factoring company buys your accounts receivables, your payments will be arranged in two installments. You'll receive your first payment when you sell the factoring company your invoice. This first payment will be a large percentage of what you have billed your customer.

Get Paid Before Your Customers Pay

As your first installment, you will usually be paid between 70 to 90 percent of the amount of your invoice. The financial company then makes life even easier for you. It also takes care of the collection process and takes responsibility for collecting payment from your customer. When your invoice is paid, you receive your second installment.

The second installment, also called the rebate, includes the rest of the money you are owed less a minimal fee for the service of the factoring company. This fee is negotiated beforehand between you and your factoring company, and is included in the contract that you sign. As you can see from the numbers, the service fees of the factoring company are only a small fraction of the actual invoice you send to your customers.

The factoring company's fee is based on the volume of business you are transacting and the financial health of your customers. As you conduct more business and deal with more credit worthy customers, it lowers the factoring company's fee. The usual monthly fee that factoring companies charge is in the range of 1.5 and 5.0 percent.

The Intermodal Transport Business Model

In 2006, the intermodal transport industry reported over $6 billion in revenue. The intermodal business continues to attract investors despite several economic factors that make the industry somewhat volatile. These factors include fuel costs and consumer demand for products that depends largely on a healthy economy. Developments like global outsourcing have led to an increased demand for international intermodal shipments by air and ocean freight liners.

In order for intermodal transportation companies to profit, they must be able to buy as much space as possible on trains, airlines and ocean freight carriers when demand is high. However, in a slow economy this may not always be possible due to sluggish accounts receivables activity which affects intermodal companies' ability to act swiftly when opportunities arise.

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