1st Commercial Credit

Learn About Funding and Supply Chain Finance Solutions, Business Tips, and Industry Related Articles.

Over 18 Years in Business

Recent Transactions

invoice factoring for a trucking oil field hauler

$1.2 Million

Oil Field Hauler

invoice factoring for a po funding valve importer from china for inventory, freight and duty fees

$210,000

Valve Importer PO funding

Freight Bill Factoring for Trucking Companies

With the going concerns of fuel surcharges, and the constant issues of delivery delays, it's no wonder today's trucking companies are getting squeezed. After all, there are just too many companies that are willing to take the easy way out and blame the trucking company for everything and anything that goes wrong. It's one thing to have to cover unforeseen emergencies, and rising fuel prices, but when customers take too long to pay their freight bill, they make it nearly impossible for today's trucking companies to finance their operations. It's a constant concern and one that directly impacts a trucking company's ability to derive a healthy profit, finance its operations, pay its vendors and support its future growth. However, today's trucking companies need not wait on customers to pay their invoices. They don't need to finance their customers' businesses for them. Instead, they can use their receivables as a tool to establish a rolling credit line, one where each new receivable is used to secure the kind of working capital trucking companies need to finance operations.

Often referred to as bill of lading factoring, a freight bill factoring service allows trucking companies avoid the high costs of waiting aimlessly for customers to cover their invoices. In fact, bill of lading factoring is becoming increasingly popular for today's trucking enterprises. So why are factoring solutions becoming more and more popular? Well, for one thing, this current economy is defined by high financing. In the worst recession since the Great Depression, today's companies are doing everything they can to save money. Unfortunately, this often includes delaying invoice payments and it's often the trucking company that is last to be paid.

In a number of instances, companies are literally maxing out their credit limit with one vendor, before moving on to another and doing the same. For these companies, their vendors represent an inexpensive source of financing. It's a reality of operating in today's economy. Eventually, your customers will take advantage of your good nature and treat your trucking company as an inexpensive source of business credit. This is especially the case when your company is handling the first of its loads on a new customer account. Simply put, your company is the last to be addressed in a long line of vendors waiting to be paid. Well, if you are tired of waiting, then today's bill of lading factoring solutions are just what you need.

Bill of Lading Factoring is an Asset-Based Financing Solution

Factoring is a very simple and straightforward financing tool. It is one of several asset-based financing solutions that allow trucking companies to use the value of current assets in order to secure the working capital needed to cover fuel card services and operational expenses. After all, it's not just the costs of fuel your company has to cover. You also have to cover the costs of repairs, the costs of payroll and the costs of managing your trucking business on a day-to-day basis. This requires a financing solution that allows you to manage your business without being overly concerned about whether your customers will pay their invoices on time. So how does factoring work?

The Simplicity of Bill of Lading Factoring

Your receivables have a value and that value can be used to establish a business credit line in your company's name. Every time you generate an invoice, the factoring company will advance your trucking company a percentage of that invoice's value. Next, the finance company will forward your customer your company's invoice and proceed to collect directly from your customer. Once your customer pays their invoice, the financing company will credit your account the difference between the original advance they provided and your customer's final invoice payment. Your company secures the working capital it needs to cover fuel costs and other operational costs, while at the same time improving your cash flow. In many ways, receivables factoring is similar to outsourcing a portion of your accounting. In essence, it's as if your trucking company is outsourcing its receivables collection.

Is the Factoring Process Complicated?

Trucking companies that use factoring are able to go about their daily activities uninterrupted. The process is simple. On every shipment your company makes, your company forwards the invoice and the bill of lading directly to the finance company. In some cases, companies will accumulate all of their invoices and send them by courier to the finance company for next day delivery. Some services allow you to email or scan this information, but for the most part, your company must physically provide these invoices to the finance company. The financing company then confirms that the delivery was made, and the advance on your receivable is transferred to your account within a 24 hour period.

How Does Factoring Differ from Bank Financing?

Borrowing capital from a bank is quite an involved process. It typically involves your company providing all three of its financial statements; you must provide a balance statement, a cash flow statement and an income statement. Next, the bank bases its decision to advance your company money based on your company's performance over a given period of time. In today's economy, with banks less and less willing to advance smaller enterprises money, it's not uncommon for them to insist upon seeing three to five years of consistent returns.

Factoring is entirely different. First, the decision to advance your company funds isn't based on your company's financial performance. In this case, you don't have to worry about providing all three financial statements, or concern yourself with your company's credit rating. Second, the factoring company bases its decision to advance your company capital based on the account debtor's ability to pay. In this case, the account debtor would be the customer who owes on your receivable. Finally, the costs of factoring are calculated differently than bank financing. What is this all-important difference?

How are Interest Rates Charged on Factoring?

When a company borrows from a bank, it must cover a yearly interest rate charged against the amount of capital they borrow. This yearly interest rate is then divided by the 365 days within the year. This provides the company with a daily interest rate to borrow capital. That daily rate is applied to each day the company borrows money and doesn't repay it. In terms of a company's receivable, the company must cover this daily financing cost every day until the customer pays their bill.

With factoring, the approach is entirely different. Your company will pay an administration fee that is charged against the total value of your receivable. In most cases, this administration fee is between 1 to 4 percent, depending upon the size of the receivable and the credit worthiness of the account debtor and the advance rate.

An Example of Bill of Lading Factoring

Let's assume your company makes a delivery where you invoice your customer $5,000 for your services. You provide the financing company with the invoice and the bill of lading. The finance company advances your company 90 percent of your receivable's value, or $4,500. In this case, the administration fee or discount fee would be applied to the $5,000 total value. The only similarity with bank financing is that the finance company would charge a daily effective rate for every day it takes your customer to pay their invoice.

As a freight forwarder, your company doesn't have to be saddled with the burden of financing your customer's business. You can avoid the high costs of waiting for customers to pay their invoices. You can do away with the burden of always being the last paid. Instead, you can use factoring and assume control over your freight company's finances. In the end, it will improve your cash flow, allow you to better manage fuel costs and improve your overall operations.