Posted on: 9 May 2016
If you are the owner of a small local trucking company, then you are likely struggling to get your clients to pay your company's outstanding receivables. Since this situation is unfortunately all too common in the trucking industry, there is a solution known as factoring that can easily get the cash flowing into your business again. Factoring your company's receivables removes you from the collection process and allows you to spend your time acquiring new business rather than trying to collect on the bills for past work already completed.
Here is some information about how the trucking company receivable factoring process works to help you decide if it is the solution to your short-term cashflow problem:
The Factoring Process Explained
The word "factoring" is a financial term that does very little to describe its meaning. So, if you have never heard of the receivables factoring process, then you are certainly not alone.
The easiest way to explain the factoring process is an example. Suppose for a moment that your trucking company has receivables that total $100K that you are trying to collect on to pay your company's bills. If you would like to turn those future payments into immediate cash, then you can bundle together all of those invoices and sell them to a factoring company for an amount of money less than the $100K due.
The factoring company then owns those receivables and will then collect the money for them directly from your customers. The fee for the factoring company who gives you a lump sum of money upfront is the difference between the total amount due for the receivables and the amount of money that they pay your company to purchase them.
The Advantages and Disadvantages of Factoring Your Company's Receivables
Factoring your trucking company's receivables has the advantage of raising capital in a very short amount of time. However, the disadvantage is that the quick cash comes with a loss of profits from your company's receivables.
The second major advantage of factoring your company's receivables is that the factoring company will take over all of the collection activities for those receivables that you have bundled and sold. While this saves you a lot of time and keeps you from having to discuss outstanding bills with your customers, it does come with the disadvantage of the loss of control of the collection process. This may frustrate your customers and that is an issue that you need to carefully consider.
For more information, contact Factor Loads or a similar company.Share