Owning a trucking company can be a great way to earn a living; however, it can also be a challenging type of business to run simply because trucking companies often experience difficulties with cash flow. This is the reason many trucking companies turn to factoring. If you are currently running a trucking company and are considering using factoring to help you improve your cash flow, you should compare the following three things when choosing a company to use for this purpose.
The upfront payment percentage
Factoring is a process that allows you to get cash now for invoices your customers will pay for later, and there are a number of things to consider when selecting a factoring company. The first thing you should understand as you start looking for the right company is the difference between recourse and nonrecourse factoring. The method you select will affect the percentage of money you will receive upfront when you sell your invoices to the factoring company.
Recourse factoring is very common and typically offers a higher upfront percentage when selling invoices. With this option, you agree to buy back any invoices that are uncollectible by a certain date. Nonrecourse factoring may pay a lower upfront percentage, but you will never have to buy back uncollectible invoices. The factoring company will own these and will take the loss on them.
In most cases, the percentage of money you will receive upfront will be between 70% to 90% of the total invoice balances. This means if you sell $10,000 of invoices to a factoring company, they will immediately pay you $7,000 to $9,000 for them, depending on the rate you've agreed upon. After they collect the money owed for the invoices, you will receive the rest of the money minus the fees.
The fee percentage
The second factor to compare is the percentage rate for the fees. This rate is normally anywhere from 2% to 6%, and you should look for a company with the lowest rate. This fee is the money the factoring company earns for handling the transactions related to your business.
Experience in this industry
The final factor to consider is the experience the factoring company has with trucking businesses. It is better to select a company that specializes in factoring for trucking companies, because these factoring companies will fully understand the unique challenges trucking companies face with cash flow.
For example, a factoring company that specializes in trucking companies may offer factoring for things other than invoices. This can include giving your company money to purchase fuel before it is used. Trucking factoring companies will provide the best services and feature for your business.
If you tired of running your company with barely any cash, you should consider using factoring. To learn more, contact a company that offers factoring services, like Factor Loads, for trucking companies.