Factoring is a common process used in the trucking industry that involves selling accounts receivables for cash. The purpose of factoring is to keep your company's cash flow positive, and positive cash flow tends to be a problem with trucking businesses. If your business is struggling with this issue, you may want to look into factoring too. Here are three important things to look for in the company you choose to use.
The Rates
Factoring is a process in which you will sell accounts receivables to a third party. The third party is a factoring company, and they will pay you cash for these accounts. As you look for a company, it is important to understand how this process works and the differences in the way factoring companies complete this process.
One area to look at is the percentage the factoring company will pay you upfront for your accounts receivables. Most companies pay around 90% of the total bills, and this is the percentage you should look for when choosing a company. What this means is that if you sell them $10,000 of invoices, they will give you $9,000 up front. They will give you the remaining amount when they collect the invoices from your customers; however, they will deduct a fee for the services.
The fee they deduct is a second thing to consider when using a freight factoring company. The fee is often around 1% to 5% of the total amount they purchase. In this example, the fees you would pay might be around $100 to $500. The fees might be higher if the due dates are longer than 30 days, and this too is something to ask when hiring a factoring company.
Minimum Amounts
The second important thing to find out when looking for a factoring company is if they have a minimum amount guideline. A minimum amount refers to the total amount of invoices you are required to sell each month. For example, there may be some companies that will only purchase accounts receivables if you have at least $5,000 of invoices to sell. Other companies may have a higher or lower amount than this, and some companies may not have any minimum requirements.
It is important to find a company that suits your needs when it comes to minimum requirements. For example, if you normally have around $3,000 of invoices to sell each month, you would want to make sure this fits into the requirements of the company you select. In addition, you may want to find out if you need to maintain a minimum amount of sales each month to continue using these services.
Other Incentives
Most factoring companies work the same way, but there are some companies that offer additional incentives and services to their customers. For example, you might find a factoring company that provides free credit check services. When you offer credit lines to customers, you would normally have to pay for this service yourself, and you would have to spend the time completing the necessary steps. If you can find a factoring company that provides this service for free, it could help you save a lot of money and time. Factoring companies often offer this service because they are directly affected by the creditworthiness of your customers.
Each factoring company you look into may have different rates, fees, and minimum balance requirements, and each may offer different types of incentives. These are all things to look into as you look for the right factoring company to hire.
Factoring your accounts receivables is a great way to keep cash flowing into your business. To learn more about factoring services, call a factoring company that specializes in the trucking industry, such as Factor Loads.
