What Is Factoring In Trucking?
Factoring is a financial process in which a business sells its accounts receivable (invoices) to a third party at a discount. This allows the business to receive cash upfront for their outstanding invoices, rather than waiting for customers to pay.
Factoring is often used by businesses that have a high volume of invoices, but lack the cash flow to wait for payment. This can be particularly useful for businesses in the transportation industry, which often deal with long payment terms and large expenses such as fuel and equipment.
The transportation industry has seen a significant increase in the use of factoring in recent years. According to the International Factoring Association, the transportation industry accounts for approximately 15% of all factored invoices in the United States.
One major success of factoring in the transportation industry is the ability to improve cash flow. With factoring, businesses can receive payment for their invoices in as little as 24 hours, rather than waiting 30, 60 or even 90 days for payment. This allows transportation businesses to better manage their expenses, such as fuel and equipment costs, and invest in growth opportunities.
Another success of factoring in the transportation industry is the ability to expand into new markets. With the cash flow provided by factoring, transportation businesses can take on new customers and contracts without having to worry about the financial strain of waiting for payment.
According to a study by the Commercial Finance Association, transportation businesses that use factoring have a default rate of less than 1%, compared to the national average of 8%. This is likely due to the fact that factoring companies thoroughly review a business's creditworthiness before providing funding.
In conclusion, factoring has proven to be a valuable financial tool for the transportation industry. It improves cash flow, allows for expansion into new markets, and helps transportation businesses manage expenses and invest in growth opportunities. With a low default rate and the ability to receive payment in as little as 24 hours, factoring is an attractive option for transportation businesses looking to secure their financial future.