A trucking company will face a wide range of issues with its operation, but none will create more of a risk to your financial situation than your accounts receivables. The more invoices you have in your accounts receivables department, the less cash flow you have at that specific time.
When you go to the supermarket to grab groceries for your home, you don’t get to go up to the register and tell them — “I’d like to pay for these groceries in 30-90 days.” Quite frankly, the supermarket cashier would likely look at you and laugh.
Unfortunately, this is the reality that many trucking companies are faced with every single day. They finish a delivery, send the company an invoice, and then they don’t see any payment for 30-90 days.
This won’t do much for a trucking company that needs to continue operating each day in order to fulfill their deliveries and keep their business running. Since expenses don’t wait for you to have the money, your clients shouldn’t have to make you wait for your revenue.
Luckily, there are various resources available to your trucking company that can help you retake control of your accounts receivables department and keep your company in good financial standing day-in and day-out.
What is Pledging Accounts Receivables?
The first resource we’ll be looking at is pledging accounts receivables, which refers to using your accounts receivables as collateral to obtain a loan. The lender will look at your accounts receivables as money you’ll eventually make, giving them confidence that you’ll be able to repay.
This is typically a great option for companies struggling to receive a loan the normal way — or for a trucking company that doesn’t want to apply for a loan the normal way.
Once you receive the loan, you’ll have the cash you need to continue operating. Eventually, you’ll have to pay them back — plus interest — when your accounts receivables start to open up again. You will still be responsible for collecting payment from your clients.
What is Factoring Accounts Receivables?
If you’re looking for more of a service than a resource, factoring accounts receivables is a much more logical and practical way of keeping your trucking company in good financial standing.
Factoring accounts receivables will work similarly to pledging; however, there are minor differences that work in your company’s favor. Instead of receiving a loan, you receive an advance on your open invoices, usually around 70-90%. After you receive the advance, you don’t have to do anything else except wait for your client to pay the factor — so you can receive the rest of your money.
Yes, this means you won’t have to speak with the client and won’t be responsible for collecting payment for the invoice. That’s all done by the factor, giving you more time to attend to your future business.
If you’re looking for quality freight factoring, we know the best companies in the business. Check out our website to get matched with a factor ready to help you!
Codjia, Marquis. “Define Pledging Accounts Receivable.” Bizfluent, 11 Feb. 2019, bizfluent.com/info-8505294-define-pledging-accounts-receivable.html.
Carlson, Rosemary. “Using Accounts Receivable to Finance Your Small Business.” The Balance Small Business, www.thebalancesmb.com/pledging-accounts-receivable-393169.