What are the Benefits of Factoring?
Running a trucking business means constantly facing challenges, such as rising fuel costs, shortages of qualified drivers, and inconsistent cash flow.
Freight factoring can help you save time and improve your business’ cash flow, so you don’t have to wait weeks — or even months! — for your broker’s or shipper’s payment to come through. Accessing operating capital quickly, avoiding income gaps, reducing back-office work, and growing your business is as simple as agreeing to give your factoring company a certain percentage of your invoice.
Giving money to a factoring company may seem a little counterintuitive at first. But the truth is the many benefits of factoring more than compensate for the small price you pay your factoring company. If you don’t understand what freight factoring is, how it works, or are wondering, “What are the benefits of factoring?” don’t worry! We’ll go over all of that and more in this article.
Knowing When to Use Factoring
Freight factoring can help many businesses, from small start-up businesses with just one truck to companies with a large fleet of trucks and drivers.
However, it’s not the right solution for everyone. To determine whether freight factoring is right for you, you need to think about why you’re looking for a transportation factoring company and what role they’ll play in your business plan. If your company’s business plan doesn’t align with what factoring is designed for, factoring might be detrimental to your business.
- Factoring isn’t a short-term solution.
- While factoring can help new businesses, it isn’t a short-term solution. So, if you’re looking for a quick fix, factoring probably isn’t the best solution for you.
- Starting to factor freight will change everything from the frequency you haul new loads to your relationship with clients.
- Not all brokers or customers will be factorable, so you need to know your customer base before deciding to factor your invoices.
- Your customer base may be unsuitable for factoring.
- Factoring companies are supposed to expedite payments and manage back-office operations for quality customers — not to serve as a financial buffer for your slow-paying customers.
- If your customers have poor credit scores, a history of slow payments, or previous factoring compliance issues, factoring probably isn’t the best solution for you.
- Your factor will run a credit check on your customer before factoring your load, but if they are constantly left chasing bad debts from your customer, they won’t agree to factor loads in the future.
- Freight factoring works best when you apply it to your entire operation — not just a section.
- You can’t just dip your toe into factoring — in most cases, you need to be all in for factoring to work out in your favor.
- If you only factor part of your operation, you may end up handling back-office tasks and lose out on one of the biggest factoring benefits.
- Whether you need the cash to cover basic expenses like gas and salaries or you need it for bigger costs like a new truck and repairs, factoring is a great way to get the money you need — money you already earned — within 24 hours of submitting your paperwork.
- Learn more about how to choose a freight factoring company that’s right for your business.
Take the next step and choose your freight factoring company today.
Having a trusted freight factoring company can support your bottom line, and increase your cash flow.
Learn everything you need to know about what freight factoring is, benefits of factoring, understanding the end-to-end process of factoring, and the difference between recourse vs. non-recourse. DAT is here to help you decide if factoring is right for your business.