Running a trucking company can be a great way to earn a living; however, most trucking companies face challenges when it comes to cash flow. This is typically because a trucking company is offering freight services each day of the week, but the customers paying the freight usually have 30 days or more before they are required to pay their bills. This is why a lot of trucking companies turn to factoring services. Here are two main benefits you should consider if you are thinking of using accounts receivable factoring.
You Will Not Have To Worry About Collections
The main reason companies use factoring is to eliminate cash flow problems, but a second major benefit of factoring accounts receivables is the relief it gives you for collecting the money owed. While most of your accounts may pay their bills on time, there may be certain customers that do not.
When customers fail to pay on time, you will have to spend your time making phone calls or writing letters to send to them. Not only is this a time-consuming task, but it can also make things more stressful at work. Instead of spending your time managing these accounts, you can close them out by selling them to a factoring company.
When you factor, you turn over your accounts to a different company. After this happens, the factoring company becomes responsible for the collections of your accounts. In return, you will pay a percentage of your accounts to the factoring company. This percentage varies, but it is often 1% to 5% of the account balances.
When you decide to factor your accounts receivables, you will get cash right away. You can choose to factor your accounts every month, or you could do it weekly if you would like. If you factor every account you have on a regular basis, you will have a steady cash flow coming in. Each time you factor, you exchange your accounts receivables for cash. Doing this weekly will keep cash flowing in on a weekly basis.
You Can Keep Your Customers Happy
Paying the percentage to a factoring company may seem like a big expense, but it really is not when you consider the benefits this offers. Factoring is the only way to keep your cash flow moving without borrowing money, and it will help keep your customers happy, because you can continue offering 30 days or longer on their accounts. This is not something you could continue to do if you constantly experience cash flow problems.
You could also view this from a different angle. If you experience a time when cash is short and you need to pay bills, the alternative option you have is to take a loan. If you took a loan to cover these expenses, you would have to pay interest on it. The interest you pay may be more than you would spend by choosing to factor your accounts receivables.
In addition, if you are concerned over the expense of factoring, you could always increase your freight rates to your customers. If you do this, be careful not to increase the rates too much. A small increase, such as 1%, to all your customers should be sufficient in covering the expenses you incur from factoring.
Factoring has so many benefits for trucking companies and companies in all other industries. It can offer you a way to keep your cash flowing without borrowing money from a bank, and this could be the solution you have been looking for. To learn more, contact a company that offers factoring services for trucking companies, such as Factor Loads.Share