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In the transportation industry, trucking companies rely on shippers to pay their freight bills in order to make ends meet. In many cases, freight bills go unpaid for 30, 60 or 90 days until the customer actually pays. When this occurs, it can put a strain on a trucking company's financial situation. To combat this issue, many companies turn to trucking and transportation factoring as an alternative.

How Trucking Factoring Works

The basic idea behind trucking factoring is simple and effective. A trucking company has unpaid freight bills and a lack of cash. The trucking company then turns to a factoring provider for help. The trucking company has to fill out an application and provide information about these invoices to the factoring company. The factoring company then looks at the invoices and evaluates them on how likely they are to be paid. At that point, the factoring company sends cash to the trucking company in the form of a cash advance.

When the customer that owes money on the freight bill pays the invoice, the factoring company then pays the trucking company the remainder of what was owed. The factoring company keeps a small percentage of the bill as payment for the services rendered.

Benefits

Running a trucking company can be very cost intensive. You have to continually come up with cash to pay for equipment, repairs, fuel, wages and other costs. Without enough cash flow on hand, you may not be able to deliver on your end of the bargain when shipping freight across the country. If you have unpaid invoices, you can turn those into cash almost immediately without having to wait on customers to pay their bills. This makes it possible to get your hands on the cash you need right away so that you can continue regular business operations and earn more money.

Considerations

Before you make the decision to get involved with trucking factoring, you have to make sure that it is the best solution for you. You will have to pay some kind of fee for this service as factoring companies do not advance cash for free. While the fee is usually a flat one and it is very reasonable, this can cut into your company's profitability overall. Because of this, you will have to look at your profit margins and make sure that you can afford to cut into them a bit in order to improve cash flow. Most businesses who are short on cash flow find that this minor cost is well worth the extra cash flow that factoring provides. Once you make the decision to get involved with factoring, you will need to find a factoring company with a good reputation and then initiate the process of factoring your invoices.