Trucking requires cash flow in order to be effective. Unfortunately, customers will often wait to pay for the services they receive. Thus, a trucking company might need to find another way to pay for gas and other road necessities while they are eating for payment from a customer. Factoring creates a way to create cash flow before customers pay their invoices.
What Is Factoring?
Factoring is a sort of loan, but it is not based on your credit. Instead, it is based on your customers' credit and your ability to make sales. When you make a sale, you contact a factoring company to sell your invoice, and they advance you most of the money that you are due. Once your customer pays the invoice, the factoring company pays you the rest of the value of the invoice minus a small fee for assuming the risk of a customer who defaults on the payment.
When Is Factoring a Good Choice?
Factoring may not always be the right option for a business, but there are definitely situations when it is a good idea:
1. As a start-up company, you may not have a large enough customer base to allow you to grow your business as you would like to. Factoring can help you to generate cash flow more quickly than you could if you were to wait for your customers to pay your invoices.
2. Even a well established trucking company might find itself in a bind when taking on a new client. For example, if you have enough money to handle the costs of transporting for your current clients, and then you take on a new client, you might find your cash reserves are not sufficient to handle the costs of taking on the new client. Once your client starts to pay their invoices, things might even out, but until that happens, you might need to work with a factoring company to help you generate more cash flow.
Do You Have to Factor All of Your Invoices?
When you work with a factoring company, you should be able to factor just the invoices that you need to. Thus, you should consider factoring only when you need to generate more cash flow than you are able to create when you wait for your customers to pay their invoices.
While taking out loans is not the best way to generate business, factoring works differently. You don't have to worry about paying back the advance you get from a factoring company. Instead, the factoring company takes over the need to get payment from a your customer. Thus, factoring makes a good way to help grow your business.
To learn more, contact a factoring company like Factor Loads.Share
20 October 2015
When it comes to borrowing cash for a new house or a nice car, how much money do you really need? Although you might be tempted to mortgage yourself to the brim or borrow a little more than you should, the fact of the matter is that everyone has financial limits. My blog discusses the impact of borrowing more than you need, so that you can make smarter decisions with your money. In addition to keeping you out of trouble, this valuable information might also improve your quality of life and protect your financial future. You never know, it could make all the difference.