Could Your Business Benefit From Factoring To Get Cash?

Could Your Business Benefit From Factoring To Get Cash?

 

Freight factoring — selling your outstanding invoices to a third party — is a great way for cash-strapped hauling companies or any company that is just starting out and needs capital quickly. By getting rid of your outstanding invoices (selling them or cash) you can keep the cash flowing inside your business.

 

Factoring is the practice of selling invoices to a factoring company, for an agreed upon sum, so you don’t have to wait 30, 60 or 90 days to be paid. You, as the business owner get cash right away from the factoring company so you can do more business. For a small fee (by way of a discount on the invoice that you give up), the factor company then waits the 30, 60 or 90 days to be paid from your customer.

 

Factoring is a standard business practice used in many different parts of the business world including the retail, wholesale, manufacturing and trucking industries. It can help you forego getting a line of credit that may be difficult for a younger company to obtain. As mentioned, one such industry that uses factoring is the trucking industry but it is not alone. Many industries find that with the use of factoring, and its cash on demand methods, companies can grow and expand much more easily.

 

Here are some quick tips to help you decide if factoring can help your business:

 

Why Factor?

 

Freight factoring may seem like something companies do only when they are cash poor and in need of a quick cash injection. While this is can be true, factoring can actually benefit any company in today’s constantly-connected business world.

 

Because everything in life moves faster nowadays, factoring can help speed up all aspects of your business. Most factoring companies will buy your invoices as soon as your freight is delivered and confirmed. This means that you can have immediate cash on hand as soon as your drivers complete their trips, everyday. You won’t have to wait around for 30 or 60 day payments or fight with possible overdue invoices that are tough to receive payment on.

 

Most factoring companies have apps as well, meaning that you can access your account with them anytime, from anywhere. This means that you can immediately know how much cash you have so you can plan for your next batch of shipments.

 

Find the Right Factoring Company

 

There are a lot of different factoring companies out there, so you need to find the one that’s right for your business. Here is a Freight Factoring Directory where you check out many companies and gather information.

 

No matter which company you go with, you should make sure that they specialize in dealing with the type of business you are in. So if you own a trucking business, be sure you select a factor that is trained with factoring for trucking companies. They will know the common needs and problems that companies like yours have and will be able to handle any questions and concerns better than a company that specializes in, say, factoring consumer debts. If you ever have an emergency or need quick advice, they will know how to help you.

 

If you can, find other companies that have worked with that factoring company and ask them their opinions. You can find out a lot about both the good and the bad of any company just by asking past and present customers. You can also search the internet for reviews of the company and see what the common praises and complaints.

 

Know What You’re Getting

 

The factoring process is fairly straightforward: you and the factoring company agree upon a percentage of payment for every invoice they purchase from you. Usually, the percentage you will receive can range from 70% to 90% of the invoice amount. So you must be sure, if you are operating on a 20% profit margin, you don’t agree to give up 30% of your invoice.

 

If you are just starting out or have had financial troubles in the past, you may receive a lower percent of the invoice than if the health of your company is strong. Whatever the case may be, make sure that the percentage you agree upon is fair and makes the immediacy of the cash worth it. If your company desperately needs cash, you may agree to a lower rate just to get the cash flowing again, whereas a company with deeper coffers can hold out for a higher rate.

 

Whatever you agree to, read the contract fully and know the pros and cons of the agreement.

 

Types of Factoring

 

There are two types of factoring that you should be aware of: recourse and non-recourse factoring.

 

Recourse factoring is the most common and is where the factoring company pays you an agreed upon fee but will require you to refund any unpaid invoices after a certain time. This will give you a better rate, but may cost you money if a customer doesn’t pay.

 

Non-recourse factoring is where you are free and clear of all responsibilities the moment the company pays you, but you will typically receive a lower rate because the factor takes on all future responsibility. Each has its pros and cons and you should look into both.

 

Josh Ball took over the family haulage company a few years back after his Father decided to take early retirement. As keen as he is to learn and improve, he also likes to share his business tips to help other small business owners.

source http://www.business-opportunities.biz/2016/11/14/business-benefit-factoring-get-cash/