The United States is home to a vast infrastructure for production of finished goods and foodstuffs, ranging from dairy and chicken meat to cars, furniture, books, and more. But it’s not enough to have all those factories and farms alone; those finished goods need to be delivered, and freight delivery companies are ready to help. To match the huge American production sector, there is also a robust network of vehicles and carrier companies to deliver goods domestically and also ship them internationally with trade partners near and far. The United States is home to around 12 million trucks, rail cars, freight locomotives, and seagoing ships in its transport network, and there’s plenty of cargo planes out there, too. Planes travel to islands and can carry expedited deliveries, and trucks have the advantage of traveling nearly anywhere on roads, no railroads or airports needed. These carriers make money when they charge invoices to their shipper customers, but invoices take awhile to pay. This is why carriers may turn to freight load factoring companies for help to smooth out their cash flow. A loan from freight factoring services such as Advance Business Capital can do a lot of good.
It may be noted that most carrier companies in the United States today, like most business types, tend to be on the smaller side. Such companies may have a modest but hardworking fleet of cargo trucks on hand, and these companies may reach out to freight brokers as a third party between them and shipper clients who need their items delivered. This is a fine option, but after the delivery is made, these carriers will charge an invoice to their customers that may take awhile to pay. Even if it’s paid on time, invoice money might not arrive for 60-90 days, and invoices are certainly late sometimes. The problem is that smaller carrier companies don’t have deep cash reserves to fall back on while waiting, and those carriers have expenses of their own such as truck payments, fuel and maintenance costs, staff salaries and wages, and more.
A smaller carrier company might even go bankrupt waiting for invoice money, but freight load factoring companies can help. Invoice funding companies like these can offer freight capital factoring services, which are typically business loans. A carrier with shallow cash reserves can make good use of what these freight load factoring companies have to offer, and a good business credit score allows that carrier to more easily appeal to local freight load factoring companies and convince them to offer a loan. What might happen if such a loan is approved?
Invoice Factoring Loans
Let us presume that a carrier company has good business credit and was approved for a loan from a freight factoring company in its area. To start with, that factoring company will purchase the rights to collect 100% of the outstanding invoice’s value when the shipper customer pays it, on time or not. In the meantime, the freight factoring company will give the carrier company a large, up-front loan that may be as much as 70-80% of the outstanding invoice’s total value. This timely loan is critical, as it allows the carrier to cover its own expenses while waiting for the shipper customer to pay. This can save a carrier from bankruptcy, and smooth out its cash flow to prevent serious debts.
Later, when the shipper customer does pay that outstanding invoice, the factoring company will collect it all, as arranged earlier. Now, with the money in hand, the factoring firm will give the carrier company another, smaller loan. The loans may add up to 95-98% of the invoice’s total value, but not a full 100%. Rather, the factoring firm will keep that 2-5% as a fee for services rendered, and that’s a major source of income for that firm. While this does mean that the carrier company sacrifices 2-5% of the invoice’s value, this is usually a good deal to take since it’s vital to get that up-front loan right away. A carrier company may well go bankrupt while waiting for 100% of the invoice’s value to arrive. Thus, it may be an easy price to pay to smooth out the cash flow in most cases.