Freight factoring and accounts receivable financing refer to transactions in which a factor or third-party financing company assumes outstanding invoices of a trucking company. These companies will pay you the amount of the invoice, minus its fees, and then collect them from your customer.

Why Do You Need the Help of a Factoring Company?

A factoring company will serve as the lifeline of any trucking fleet that needs a quick infusion of cash to sustain its operation. Typically, invoices are not processed immediately. It would take customers about 30 days and up to 90 days to pay the trucking company.

The problem is that if you’re a small trucking company, you can’t insist on immediate payment from your customers. They know the customary practice of giving a head-start of at least 30 days to settle their invoices.

Insisting on getting paid right away will mean watching your customers head off to your competitors.

Smaller businesses cannot take such a financial burden, especially when they don’t have enough funds to go around. In most instances, the money they earn goes into operating costs.

About 90% of the trucking companies in the US only have fewer than six trucks in their fleet. It’s the reason why factoring is a standard practice in the industry. Both the trucking companies and factors are benefitting from each other’s presence.

​Freight Factoring vs. Accounts Receivable Financing

Even if freight factoring and accounts receivable financing are used interchangeably, there’s a slight difference in the way they are designed.

The accounts receivable financing is designed for trucking fleets that require short-term cash flows. You may need the cash infusion to replenish your inventory, repairs, and maintenance, meeting the payroll, and paying the rent.

Other financing tools may also be considered, such as a small business line of credit, to meet your cash needs. However, they typically require more stringent requirements, and the approval time is quite long.

In contrast, accounts receivable financing has fewer requirements, and you typically get the cash within the day. Also, you don’t need to reapply for the same loan whenever you need the cash infusion.

Meanwhile, invoice financing or freight factoring is better suited for more prominent companies. The factoring company will pay you as much as 80-90% of your total outstanding invoice at the outset. You get the money within 24 hours or 48 hours at the latest.

The balance will be paid once your customer settles the outstanding invoice. However, the factor will take out the fees you agreed upon during the contract signing.

The accounts receivable financing, or even freight factoring, is not designed for long-term investments. They are meant to give you cash flows against your expected invoices.

Whichever method you choose, contact SoundFinance today, for reliable financial solutions for your business. They have financial experts on standby to help you decide the best financing aid for you. For more information on the above, you can always conduct a search online.