Freight companies are one of the worst types of companies to be involved with and the reason for this is due to the fact that they will find themselves especially vulnerable to poor cash flow problems by virtue of the fact that many of their customers do not settle their outstanding accounts when and as required. As the freight company has to anxiously wait for the customers to finally get around to paying the money that is owed, the freight company will still be fully liable for the various expenses that they will incur such as the cost of maintenance of their vehicles, along with the cost of fuel and wages.
While some of the expenses such as the cost of the wages of the employees and even the cost of raw materials from suppliers can be delayed for a period of time, some expenses such as the cost of fuel as the delivery vehicles are en route to make a delivery cannot, and therefore must be settled there and then. In short, a freight company will have to have a ready supply of working capital at hand, in order to settle and satisfy sundry expenses that will invariably crop up.
This is where freight factoring comes into play, and quite frankly, it has been described as the owners of freight companies as the saviour of their business as it means that they are able to settle their own debts in a timely manner. For some curious reason, it would seem that many people are of the opinion that freight factoring is in some way radically different from to ordinary invoice factoring. It’s not.
Indeed, freight factoring is nothing more than the process of factoring… with the only crucial difference being that it used within the world of freight delivery.
Therefore, a freight company will effectively “sell” a volume of invoices that have an outstanding balance owed on them by customers to a factoring agency, who will in return for the invoices that they received, then provide an upfront sum of money to the freight company. The amount of money provided by the factoring agency will be directly contingent upon the net value of the invoices that have been submitted, and so this makes life a lot easier for the freight company who can settle debts instantly.
Another major benefit of this method of business financing for the freight business owner is that the company will be able to generate a significant amount of capital in an extremely short period of time without having to sacrifice or relinquish any of the equity of the business as a whole. Furthermore, this method of financing can be utilised in conjunction with other, more traditional methods of financing such as bank over drafts and loans.
The reason for this is that this specific method of financing is totally unrelated and unconcerned with the credit rating of the applicant business.thereby ensuring that the company will have the maximum degree of flexibility possible for them to choose the various options open to them.