Trucking Factoring Costs

Trucking Business  Investment:  The best ways to Do It  By yourself 

 In contrast to what most small trucking business owners  believe,  funding a business is not rocket science.  In truth, there are only three  primary  means to do it: via debt, equity or what I call “do it yourself”  finance.


Each  approach  has benefits and drawbacks you should  know. At various stages in your business’s life cycle, one or more of these methods may be appropriate.  That is why, a thorough  knowledge of each  technique  is necessary if you think you may ever  want to  get  funding for your business.


Debt and Equity: Pros and Cons


Debt and equity are what  many people  think about when you ask them about business financing. Traditional debt financing is  normally provided by banks, which loan money that must be repaid with interest within a certain  period. These loans  often must be secured by collateral  in the event they can not be repaid.


The cost of debt is relatively low,  particularly in today’s low-interest-rate environment. However, business loans have become harder to come by in the current tight credit environment.


Equity financing is  given by investors who receive shares of ownership in the company, rather than interest, in exchange for their money. These are typically venture capitalists, private equity firms and angel investors.  Though equity financing does not have to be repaid like a bank loan does, the cost in the long run  can possibly be much higher than debt.


This is because each share of ownership you divest to an investor is an ownership share out of your pocket that has an unknown future value. Equity investors often place terms and conditions on  funding that can  hog-tie owners, and they  anticipate a very high rate of return on the companies they invest in.


DIY Financing


My  preferred kind of financing is the do-it-yourself, or DIY, variety. And one of the best ways to DIY is  by utilizing a  funding technique called factoring. With  receivable factoring  products, companies sell their outstanding receivables to a commercial finance company (sometimes referred to as a ” invoice factoring company”) at a discount. There are two key benefits of factoring:.


 Noticeably  bolstered cash flow  As opposed to  standing by to  get payment, the business gets  the majority of the accounts receivable when the invoice is generated. This reduction in the receivables lag can mean the difference between success and failure for companies operating on long cash flow cycles.


No more credit analysis, risk or collections The finance company  does credit checks on customers and  scrutinizes credit reports to uncover bad risks and set appropriate credit limits essentially becoming the businesss full-time credit manager. It also  conducts all the services of a full-fledged accounts receivable (A/R) department, including folding, stuffing, mailing and documenting invoices and payments in an accounting system.


Truck Factoring is not as well-known as debt and equity, but it’s often more  useful as a business  funding tool. One reason many trucking owners don’t consider truck factoring first is because it takes some time and  energy to make  invoice factoring work.  Many people today are  seeking  quick answers and immediate results, but quick fixes are not always  accessible or advisable.


Making It Work.


For  trucking factoring to  function, the business must  achieve one  extremely important thing:  supply a  high quality product or service to a creditworthy customer.  Naturally, this is something the business was created  to perform  to begin with, but it  works as a built-in incentive so the business owner does not forget what he or she should be doing anyway.


Once the customer is satisfied, the business will be paid  promptly by the factor it doesn’t  need to wait 30, 60 or 90 days or longer to  get payment. The business can then  quickly pay its suppliers and reinvest the profits back into the company. It can  make use of these profits to pay any past-due items, obtain discounts from suppliers or increase sales. These benefits will  often more than offset the fees paid to the  factoring company. See here Trucking Factoring Costs


By  using a trucking factoring company, a trucking business can  increase its sales, build strong supplier relationships and  enhance its financial statements. And by  relying upon the  invoice factoring company’s A/R management  programs, the business owner can  prioritize growing sales and  boosting profitability. All of this can  happen without increasing debt or diluting equity.


The average truck business uses trucking factoring companies for about 18 months, which is the time it usually  requires to achieve growth objectives, pay off past-due amounts and strengthen the balance sheet. Then the business will likely  find themselves in a better position to  pursue debt and equity opportunities if it still  has to. Be sure to also read about Trucking Factoring Costs