subject: Factoring In The Cost Of Success In Cash Flow Management For Transportation Companies [print this page] Trucking is an interesting occupation, but making things really work from a trucking company standpoint often requires creative thinking for getting paid. Start up truckers do not always realize they will have to wait many months, sometimes up to a year to get paid for a transportation job. This lag in getting paid can be very destructive to cash flow management, and the ability to be able to pay the truck drivers. Cash flow is important in any business, just like any personal life.
Some companies are using a service that is somewhat like another familiar idea in financing, the payday loan. Transportation factoring is where a third party buys the invoices from the trucking and shipping companies at a discount and then collects payment from the company that contracted the shipment when the invoice is paid. Another industry that does a similar thing is the note purchasing industry where buyers pay out a discounted amount of money for the remaining payments on a property note like a mortgage or other income source.
Buying and managing cash flow through the sale and purchase of inventory or other items might seem like a dodgy way to conduct business for some uneducated individuals. However, this happens all the time, with almost every single successful large company. Commercial paper is the currency of large companies where they borrow money to buy materials, cover manufacturing costs, meet payrolls and pay operational expenditures. The ability to raise capitol when needed for a company of any size, whether large or small, is vital to their long term survival in the marketplace.
Meeting the requirements to open a factoring account with a third party will include the need to have the company's credit checked, the credit rating of Dun and Bradstreet, the amount of business completed, the assets of the company currently and the amount of business anticipated in the future. There will be a percentage fee taken out of the amount that is forwarded to the company selling their invoices, this fee covers the costs of the company buying the invoice and is also the profit they will make on the transaction.
The company that writes the invoice, the one that contracted to pay the shipper for the completion of the transportation of their products, will pay the invoice as promised, or will face collection efforts from the factoring company. In some ways, the reduced costs of collection and the immediate access to the needed funds by the transportation company are more than worth the fee paid to the factoring company.
