The Good Sense of Freight Factoring

The term may sound complicated (anything that involves math sounds complicated), but in fact freight factoring is a pretty simple concept. You, as owner of a trucking company or independent trucker, sell your accounts receivable (invoices) to a third-party company called the factor for slightly less than the face value of the invoice. It’s similar to rediscounting a postdated check; instead of getting $100 which is what the check is for, you get something like $90 but you get it at once.

There are many reasons why it may be a good idea to avail of freight factoring, but the main reason is to improve your cash flow without having to go through a long process as you would have to for a bank loan, for instance. Freight factoring companies such as TBS Factoring can typically let a trucker have the cash they need for operations within 24 hours of getting an invoice. Moreover, it is not considered debt because the invoices are in essence sold, not used as collateral, and the terms are usually short, between 30 to 90 days at most.

Independent truckers are especially vulnerable to tight pockets because they depend on what they collect not only to keep the business going but for their personal needs. When an invoice is due in 30 days that means the trucker needs to have cash from elsewhere to live on until the invoice becomes due, and even then there is no assurance the client will pay on time. In addition, independent truckers do the hauling themselves, so they are unlikely to have the reserves available to bigger operations where there is a continuous flow of money from invoices that mature one after another.

Of course, a savvy independent trucker will manage the cash when it does come in so that there is enough to continue operations and pay for expenses until the next invoice becomes due for payment without needing to have the money advanced. Sometimes, though, it just makes more sense to have the money on hand, such as when there is a chance to upgrade the business that will enable the trucker to take more or better contracts i.e. buy a bigger truck.