The United States is home to a vast network of manufacturing sites, producing all sorts of goods from furniture to cars to electronics to kids’ toys and books. But it is not enough to merely produce those goods; there is also a vast infrastructure of freight transportation, and many freight carrier companies are hard at work to deliver items to and from factories, warehouses, retailers, and other sites. For overnight or short overseas deliveries, freight airplanes are used, and carrying large loads of cargo by land is best done with freight trains.
Meanwhile, carrier trucks handle much of the rest of the delivery work, and countless carrier companies can be found across the United States. Some of these carrier companies are large, but many of them are smaller ones, but even the smallest ones will have a fleet of hard-working trucks and crews ready to deliver items for shipper clients. These companies make a profit when they charge invoices, or business receivables, to their clients. However, these business receivables may take time to arrive, such as within 60-90 days after the delivery. And some invoices are paid late, and a trucking company may suffer cash flow problems unless a third party gets involved. Accounts receivable financing companies are that third party, and they are known for factoring business receivables for their carrier clients. Funding receivables like this can smooth over the truck company’s finances and save the company.
Invoice Factoring Companies and Truck Carriers
Many smaller business in the United States make good use of business loans to keep their cash flow smooth, and for businesses that make profits from invoices, having business partners factoring business receivables is a major boon. In fact, factoring business receivables may be the main way a carrier company avoids bankruptcy, and factoring business receivables may be possible when a carrier company has good enough business credit. After all, after a carrier company has charged an invoice to its shipper client, that carrier company still has its own expenses to cover in the meantime. A truck company may still be making payments on those trucks, not to mention the costs of refueling and maintenance, and of course staff salaries and wages. Smaller truck carrier companies usually have only thin cash reserves, often not sufficient for covering all expenses while an invoice is still outstanding.
Thus, a carrier company will turn to factoring business receivables companies in the area. A company with good business credit (distinct from personal credit) may have an easier time finding factoring companies who are willing to make a deal with them.
Getting that Loan
When a carrier company has made a delivery for a shipper client and charged an invoice, that carrier company’s manager may now turn to factoring businesses in the area and get a loan from one. To begin with, the factoring company will purchase the right to collect 100% of the invoice’s value when the shipper client pays it in full. Now, the factoring company will give the carrier company a large up-front loan, typically a loan worth 70-80% of the outstanding invoice’s value.
This up-front loan is vital, as the carrier company urgently needs money to smooth out its cash flow and cover its expenses. This timely up-front loan will satisfy the carrier company’s needs for the time being, and when the invoice is finally paid, the factoring company will collect it all, as arranged earlier. Now, with the money in hand, the factoring company will give the carrier company another, smaller loan. The loans may add up to around 95-98% of the invoice’s value, but not a full 100%. The factoring company will keep the remaining 2-5% as a fee for services rendered, the source of its income. Meanwhile, the carrier company will have exchanged that 2-5% of the invoice’s value for the vital convenience of getting that large up-front loan. In most cases, this will be a fair and sensible deal to make, and it can even save a carrier company from bankruptcy while waiting for an outstanding invoice from their customers to finally arrive.