The Need for Freight Factoring

Sep 24, 2014 by

Truckers know the ins and outs of trucking, and if they are newbies, they learn real fast. The really experienced truckers should do quite well when they strike out on their own and start their own trucking business, then, right? Well, not necessarily.

You see, there’s a great divide between driving a truck and driving a truck business. When you’re driving a truck and hauling freight, you are a technician concerned only with how to get where you’re going fast and delivering the goods safe and sound. You don’t have to worry about expenses like fuel, vehicle maintenance and repair, rent, utilities, office equipment and supplies, payroll, taxes, and so on. But when you’re in business for yourself, you’ll realize in a hurry that there is more to the trucking business than trucking. Unfortunately, many put all their savings and then some into the dream of becoming their own boss and realize this reality too late to pull back without losing everything.

The biggest problem for start-up trucking companies is the lapse between the job and payment. One of their earliest realizations is that with large trucking companies offering flexible payment terms to clients they can do no less in order to stay competitive. In the meantime, expenses just keep piling up, more so ironically when business is good. If they want to get more and repeat customers, they need to spend more first; the thing is where will the money come from? As pointed out on the TBS Factoring website, it is difficult to get a traditional bank loan and takes too long besides.

This is the role that freight factoring plays. It bridges the gap between the job and the payment by advancing the cash value of an invoice payable in 30 to 90 days so that the trucking company can keep afloat. It’s not a charity; freight factoring companies slice off a small piece of the pie for themselves. Overall, though, the fee is nothing compared to the cost of money of waiting for 30 to 90 days for an invoice to become due. Moreover, having the cash on hand makes it possible for the trucking company to accept more jobs and expand the business.

Freight factoring is not for everyone; certainly not for a trucking business with good cash flow. However, for the typical small trucking company, it opens up financing options that would otherwise not be available.

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