A business that supplies goods to its customers will often have to arrange for their transportation to the end user. This exercise needs to be carried out on a daily basis, and if you have your fleet of trucks, you will need to bear the cost of paying for the fuel they use, maintenance of the vehicles, their licensing and insurance, wages and overtime for employees and tolls to be paid on highways.
All these expenses will be covered in the costs you have quoted to your customers, but it is almost certain that you will have extended some credit to them and will receive your payment after a period that can be anywhere between 30 and 90 days. You meanwhile have to meet your expenses on a daily basis, and this can cause cash flow problems that may impinge and affect your more important inventory and production cash requirements. One way out of this situation is to go in for the services of freight factoring companies, who can lend you the required money for the freight component so that your overall operations remain unaffected.
Freight factoring companies must be able to understand your business and the urgency of providing the required capital so that your working capital is always used for the more useful things. They must be companies that can be easily contacted and must process your invoice as quickly as possible. They must have the needed funds at their disposal so that your operations are never interrupted. Most of these companies will fund levels of invoices that can vary from 60 to 90 percent of the invoice value. The balance gets paid only after the agreed fee has been deducted and the customer has paid the invoice.
Factoring companies who advance cash for the freight component of invoices will do their research to determine the creditworthiness of your clients. They must be sure that they will honor their payment commitments when they are due so that any cash advanced can easily be recovered. Some companies may even give you a list of their pre-approved clients who meet their creditworthiness standards and for which they may even agree to release higher amounts of any invoices.
It is not necessary for a business to offer the invoices of all its customers for freight factoring though it is always to your advantage if you give the company a greater volume of business. Some of these companies may even have procedures that can be set in motion for debt recovery in the case of difficult clients. These have to be paid for and may have to be negotiated on a case by case basis.
Before you decide to take on the services of such a company that is into freight factoring, make sure that they are easy to contact, have a presence in your area, a reputation for quick disbursal of funds and above all have the capacity to provide the necessary funding in the long term. Freight factoring along with the factoring of invoicing can go a long way to keeping cash flow problems for business, very much under control.