If you’re the owner of a new trucking company, you know that expenses can be high and payments from your clients can be slow to come in. Any new business needs some help initially, but loans can be hard to get and take a long time to pay back. Fortunately, there is a way you can stay on top of your bills without making a long-term commitment.
Truck factoring companies will buy your invoices at a slightly reduced price. When your clients pay their bills, the money will go directly to your client. According to Simplex Group – Trucking factoring, You can get your money in as little as 24 hours. However, you should know what you do when you shop for a truck factoring company. They’re not all the same.
How it Works
After you have delivered a load, you will send your bill of lauding to a factoring company. The company will review the invoices and verify them with your client. They will make any payment arrangements with the client. You can receive your money by check or electronic payment transfer. The company will pay you as soon as they can confirm delivery.
Different KInds of Truck Factoring
There are two different kinds of truck factoring; recourse and non-recourse.
Non-Recourse Factoring
If you have a non-recourse factoring agreement, the factoring company assumes all the risk of the debt. Hence, if your client doesn’t pay you, the factoring company assumes the loss. This is a huge advantage to any company, as you’re protected either way.
A non-recourse company will have a more rigorous screening process than a recourse company. You will need good credit, and you will need to show the credit checks you have done on your clients.
Recourse Factoring
In recourse factoring, you assume the responsibility if your client cannot pay their bills. If you have good credit, this type of factoring is easy to get. The fees that you will pay are likely to be much lower than those that you would pay for a non-factoring recourse agreement.
If your clients have impeccable credit and have been in business for many years, this may work. However, most companies that have been in business for a long time and have great credit have used the same trucking company for a long time. When you first start out, your clients will probably be small and new businesses.
A new business is likely to be in the same boat as you. They will have start-up expenses and unexpected problems. They have to pay for rent and supplies in addition to paying you. They must prioritize their expenses, and your company may not be their first priority.
What to Watch Out For
There are a few things you should look out for when selecting a factoring company. Many companies will hold a reserve of 10% to 15% when they send you your payout. They will pay the rest of the money at a later time. This is not a good option if you need all of your money right away.
Some factoring companies will charge you a setup fee when it does not cost them anything to set you up. Read your contract carefully for any other hidden fees.
There are factoring companies that will have monthly minimums. It’s not wise to do business with this kind of company because the entire point of using a factoring company is to avoid getting into debt. You should be able to sell a factoring company as many or as few invoices as you would like.
Running a trucking company is hard work, but it’s also a very rewarding and lucrative profession. If you use factoring wisely, your first few years of operations will go smoothly, and your bills will be paid on time.