A trucking company that neglects to utilize freight factoring services is simply behind on the times. The issue at hand is stabilizing cash flow since most owner-operators and fleet owners will deal with 30-90 day invoicing. While many may first think of a traditional bank loan, this is where freight factoring comes into play.
If you want to ensure your trucking company has the cash it needs at any given time, freight factoring services should always be preferred over a traditional bank loan. While a bank loan will give you the money you need — assuming you get approved — it will also add more debt and long-term risk.
When debating freight factoring vs. bank loans, there is much to consider because the two are completely different. We’ll break down everything you need to know, including what freight factoring services are, how they differ from a bank loan, and how you can get started with freight factoring today.
What Is Freight Factoring?
As we mentioned, a majority of trucking companies will deal with invoices that aren’t paid for 30-90 days. The problem isn’t so much that you won’t get paid because your clients generally come through. The problem is due to the fact that you need that cash now in order to properly fund your business to continue operating.
With freight factoring, you can get a majority of the invoice as an advance by using it as collateral with a factor. The factor will take over the collection, follow up with your client for you, and receive the payment in full from the client. Once the money is received by the factor, they’ll return whatever you haven’t received yet — minus a small fee.
Freight Factoring Services vs. Bank Loans
There are a lot of benefits that come with freight factoring services and bank loans simply can’t compare. Here’s a list of what you can expect with freight factoring:
- You can earn higher amounts in financing as your accounts receivables grow
- There’s no loan, no debt, and credit score generally won’t matter
- Fast setup and funds can be received within 24 hours
- The factor does the follow-up work with your client for you
On the other hand, let’s take a look at a traditional bank loan:
- Financing typically comes with a limit and you’ll be responsible for paying interest and principle
- Difficult to qualify and get approved for
- Securing a loan can take months of your time
- The bank won’t reach out to your client, you’ll still have to follow up
- Doesn’t benefit the trucking company in the long-run
The freight factoring vs. bank loan debate isn’t much of a debate after all. If you want to limit the amount of risk involved while getting your business exactly what it needs — when it needs it — then freight factoring services were built for you!
It’s no secret why so many trucking companies utilize freight factoring on a monthly basis. If you’re interested in getting started with these services, we have a team of professionals that rated the best freight factors available to you.
Head over to our ratings and see which company we believe reigns superior!
Jorgenson, Webster. “What Is Factoring?” What Is A Factoring Company | RTS Financial, 19 Jan. 2019, www.rtsinc.com/guides/what-factoring.