Accounts receivable factoring or accounts receivable financing is a very convenient trucking business owners use when they are looking to fill in the gaps in their company cash flow that are brought about by slow-payers.
But how does it work?
Simply put, it is a financial transaction that entails selling receivables to a factoring company. It. The factoring company proceeds to pay the carrier to 97% of the value within 48 working hours. The factor then collects their payment from the client billed by the trucking business.
Accounts receivable factoring happens to be a debt-free way for business owners to get paid sooner by unlocking the money held up by unpaid invoices. Instead of having to wait more than 30 days for customer payment, accounts receivable factoring helps trucking companies get paid almost immediately for goods already hauled.
Perhaps the best part of all, there is nothing to repay since it’s money that the company has earned and is not really a business loan. The factor makes their money back from collecting from the clients of the trucking business and not the business itself.
Accounts Receivable Factoring Helps Trucking Businesses Get the Funding They Need
Late payments from clients can put a heavy strain on a trucking business’s cash flow. Any small business owner is well aware how frustrating it can be waiting for clients to pay their invoices all the while trying to pay for operational costs as well as payroll.
It gets a bit more complex if outstanding invoices are holding the company back from taking on new business. But with accounts receivable factoring, businesses can get paid for outstanding receivables much easier and faster, often within 24 hours.
Companies in almost every industry can turn their receivables into fast funding with accounts receivable factoring. Factor Finders specializes in providing flexible accounts receivable financing solutions for companies in the start-up phase and also well-established companies.
The Benefits You Should Expect From Factoring Your Invoices
Factoring is more than a simple financing option, it is a comprehensive solution for trucking businesses. Accounts receivable factoring can provide you and your trucking business with a myriad of benefits that can help you smoothen business operations and drive your company further.
By working with Factor Finders, you will gain access to a dedicated account manager with expertise in the trucking industry to assist you through every step of the way and will be committed to making sure your business grows.
The many benefits of AR factoring with Factor Finders include:
Access to Unlimited Business Financing
Accounts receivable factoring is not like a traditional bank loan since factors do not provide a fixed credit line. Instead, the more your sales increase, the more access you have to instant cash advances you can use as working capital for your business.
Zero Monthly Minimum or Maximum Amounts
The beauty about factoring with Factor Finders is that you do not have to factor a predetermined amount of money every month just so your account can stay active. You’re allowed to factor as much as you need, as often as you need so that you can maintain ample cash flow to cover your business operating costs.
Qualify With Prior Financial Difficulty
Another significant benefit that makes accounts receivable financing a much better alternative to traditional lending options is its ease of accessibility for companies with poor or unestablished credit.
If you have experienced previous financial issues that reflect on your credit status or are a small company just starting out in business, you can still be approved for a competitive accounts receivable factoring program without having to add outstanding debt to your balance sheet or committing any collateral.
Comprehensive Administrative Support
Most companies dedicate a lot of their resources in the form of time and working capital to managing back-office functions such as vetting new customers or doing debt collections.
Depending on your industry of operation, the money you spend on office related expenses could significantly limit the resources you can devote to core functions of the business, making it very hard to grow.
Factoring your accounts receivables will allow you to alleviate a good number of these administrative tasks from factoring thus eliminating overhead costs which will free you to fully focus on expanding your business’s revenue.
Examples of back office support that factoring may take up include any or all of the following:
- Doing debt collections.
- Credit and background checks for existing and potential clients.
- Round the clock online account reporting.
- Invoice management
How Does Accounts Receivable Factoring Work?
No accounts receivable factoring transaction can happen without an invoice. It’s the basis of accounts receivable factoring. The invoice, however, has to fulfill certain criteria before considered factorable. It has to be unpaid, accurate, and for goods or services provided to an individual or company.
After you have billed your client, submit the invoice to an accounts receivable factoring company. The factor will verify your invoice and give you a cash advance of up to 97% of the invoiced amount within 24 hours. The balance is then kept in a reserve until your clients pay.
This will allow you to conduct your business as usual, including submitting more invoices for factoring as necessary. Your accounts receivable factoring company will collect all payments from your customers.
Once the invoice is paid, the factor will send you a rebate of any unpaid balances without of course, a minor factoring fee.
How Much Does Factoring Cost?
The cost of AR factoring can fall anywhere between 1% to 5% of the receivables’ value. The final figure is calculated based on your industry, client base, sales volume, and type of factoring program (recourse or non-recourse).
Types of Accounts Receivable Factoring
There are two approaches when it comes to factoring; either recourse factoring or non-recourse factoring.
While you may be forgiven for mistaking the two, there is one highly significant aspect that sets them apart. Let’s look at both in detail below.
Recourse Factoring
Recourse factoring is the more frequently used form of factoring between the two, and is also the cheaper one. In this approach, the factor gives companies a designated percentage of the receivables’ value. As highlighted above, the accounts receivable factoring company makes its money back by collecting from the billed client.
However, if the billed client is unable to pay the invoice after a stipulated time frame, your company must pay back the entirety of the cash advance issued by the factoring company, plus additional fees. You are then responsible for collecting the invoice payment from your client.
Non-Recourse Factoring
Non-recourse factoring operates the same way as recourse factoring, but what makes them different is what makes non-recourse factoring highly appealing.
In this scenario, when your client is unable to make their billed payment for any legal reason,
You don’t have to pay any amount of money and get to keep the cash advance.
This means the factor takes the loss thus preventing your business from incurring bad debt especially in a volatile business climate like the one we have currently.
However, this type of accounts receivables factoring exposes the factor to high risk hence why they charge more fees than in recourse factoring. The high risk nature of non-recourse factoring also compels them to assess the creditworthiness of the billed client before approval.
Is Accounts Receivable Factoring Right for Your Trucking Company?
If constantly waiting for customers to pay stresses you out or your company is growing exponentially such that your cash flow is struggling to keep up, then yes, AR factoring would be ideal for you.
It’s highly likely that as a trucking business owner, you’ve found yourself in need of some extra working capital within a week. So if you have receivables from creditworthy customers, factoring would definitely be an option worth exploring for your business.
Factoring provides a fantastic solution for trucking companies who have been unable to obtain bank financing especially since approvals for cash advances are based on the creditworthiness of your customers, and not you.
If you have to raise some extra cash to buy fuel, service your trucks, fund your marketing efforts, or take on new clients but you don’t want to incur additional debt on your balance sheet, then you could benefit from factoring receivables.
Take note that account receivables factoring companies won’t typically work with B2C companies. In order to qualify, you must work with government or business customers. Let’s take a look at some industries where factoring would be highly convenient.
Other Businesses That Can Factor Receivables
If you’re a B2B company, you’re likely eligible for accounts receivable factoring, no matter the size. Bear in mind that it does not matter whether you have less-than-perfect credit. You can acquire the financing you need by selling your accounts receivable to a factoring company.
At Factor Finders, we work with a variety of industries, including:
- Construction
- Agriculture
- Transportation
- Healthcare
- Distribution
- Oil and Gas
- Manufacturing
- Government Contractors
- Staffing
- Janitorial
If you’re looking for low factoring fees with competitive programs, Factor Finders has got you covered. Reach out to us today and let us work our magic!
