Many freight brokers across North America turn to factoring their invoices to receive their money upfront, rather than wait 30, 60, or even 90 days to get paid for freight deliveries. Factoring has proven to be a highly effective way for them to speed up their cash flow and grow their business. In addition, invoice factoring helps freight brokers avoid a variety of business risks and losses. Here’s a quick look at how your factoring company can save your brokerage from potential losses:
Bad credit risks
Shippers come and shippers go — and any freight brokerage can get hurt when one of its customers goes out of business. Your factoring company is your partner in protecting you against getting stuck with unpaid bills on deliveries. Factoring companies employ credit experts who take a proactive approach to checking your potential customers’ payment histories and prospects.
The last thing a broker wants is to take on a load, pay the motor carrier, and then waste valuable time and resources on collecting a bad debt. Your factoring company is likely to not factor customers who don’t meet minimum credit requirements and will advise you of any risky customers.
Missed opportunities with slow-paying clients
When freight brokers have to wait for customers to pay, they face the risk of their business coming to a standstill. If a broker cannot hire and pay their motor carriers on a timely basis, they will have trouble finding drivers to work for them. Without drivers, they cannot accept loads from shippers. Factoring their freight bills bridges that payment gap and keeps freight moving.
Factoring their invoices also lets brokers take advantage of profitable opportunities, such as working with larger customers with longer payment terms or being able to receive vendor discounts for early payments. The costs for missed opportunities and the risks for business slow-downs can hurt any freight brokerage.
Risks associated with traditional loans
Compared to factoring, traditional bank loans can bring their own risks, including the typically long length of time for qualification before the first payment can be issued. If a freight broker has had any financial difficulty, has a poor credit rating, or has little collateral or business history, he or she is likely to be declined for a loan. In addition, any loan carries the risk of not being able to pay it off and having to forfeit your property or other collateral that guaranteed the loan.
With factoring, you can qualify quickly – usually within a day or two at many long-established factoring companies after you submit your paperwork. Also you can typically qualify for factoring programs regardless of your own financial history. Your application is evaluated for acceptance based on the creditworthiness of your shippers and other customers, not your own credit score. Factoring is not a loan, but rather an advance on payments for services you have completed. You incur no debt and your payments increase as your business grows, without any pre-set limits.
Thousands of freight brokers rely on factoring companies every day to help them reduce business risks. Factoring with a good invoice factoring company can also help you.
Contact Interstate Capital now to learn how you can get cash fast on your accounts receivable and avoid financial risks.