Much like any business that wants to find success long-term, your trucking company will have to take advantage of the tools and resources available to you.
One of the most common issues a trucking company will face is cash flow, especially since a majority of your clients will be paying you 30-90 days after the delivery has been completed. While this might make it difficult to operate on a daily basis, there are ways around this.
If you’re a new owner, you might’ve heard the terms “PO financing” and “invoice factoring,” but might not know exactly what they are. Don’t worry, we’re going to explain the difference for you and help you determine which one is right for your trucking company.
What is Purchase Order Financing?
As the name suggests, purchase order financing has to do with purchase orders. These are orders that your client has promised to order and committed to paying. While a purchase order is great for your company, they don’t work out too well if you don’t have the cash flow to cover the expenses.
Keep in mind, most purchase orders are going to be for big orders. That means the cost to fulfill that order is likely fairly high.
Instead of telling your client you won’t be able to support their order, purchase order financing allows a third-party company to give you a percentage of that order up-front. This allows the trucking company to fulfill the order successfully.
What is Invoice Factoring?
On the other hand, invoice factoring works a bit differently. Instead of dealing with purchase orders, it deals with open invoices from your accounts receivables.
Invoice factoring comes in handy when a trucking company is stuck waiting for 30-90 days to receive payment from their client — like we explained above. The good news is you don’t necessarily have to wait that long.
When you sign a contract with a factor, they’ll give you an advance on the open invoice — typically around 70-90% of the invoice — that way you can continue to operate and fulfill orders. The factor will then assume responsibility for collecting the final payment from your client and sending you whatever is owed to you after the advance (minus a small fee that’s normally around 1%).
Can Your Trucking Company Benefit?
In reality, your trucking company can benefit from either one of the resources described above. For most trucking companies, they’ll find much more use out of invoice factoring than PO financing due to the waiting period for getting paid.
The reason we say this is because even in the event you utilize PO financing for a big order, you still need to collect payment from the client once it’s finished — which could still take 30-90 days. With invoice factoring, you won’t have to worry about cash flow issues and will likely have the cash to take on a big job anyway.
If you’re interested in getting started with invoice factoring today, check out our website to view the most reputable and effective factors around. We’ve reviewed these companies thoroughly and have done the hard work for you!
References
“What Is Purchase Order Financing?” RTS, www.rtsinc.com/articles/what-purchase-order-financing.
Gray, Sherry. “Your Small Business Has Lots of Orders and No Cash: Now What?” The Balance Small Business, www.thebalancesmb.com/purchase-order-financing-for-small-business-4772318.