The United States is home to many factories and farms, which produce the nation’s foodstuffs such as grain and dairy to finished goods such as cars, electronics, books, and furniture. But a factory or farm will only produce these goods, not deliver them. Thus, the transportation network will handle the actual distribution, and there are many vehicles today in operation to do just that. Estimates say that around 12 million trucks, rail cars, locomotives, and seagoing ships are delivering goods across the American transportation network. Airplanes are effective for delivering goods to islands or other regions difficult to reach by land, and many ships are exporting goods to other parts of the world ranging from Europe to China and South Korea to the Philippines and Australia. Trains, meanwhile, are responsible for domestic travel with large quantities of goods.
What about trucks? These vehicles can’t reach islands and they don’t cross oceans, but they are vital for domestic transportation and land-based trade with Canada to the north. These vehicles can travel on any road, and they aren’t restricted by train tracks and don’t have to land at airports like planes do. What is more, these vehicles are a fine choice for delivering cargo quantities far too small to be practical for a train, and even small carrier companies can afford to buy them. Nearly six million commercial motor vehicle drivers are at work across the United States today, and the U.S. is home to many small carrier companies that boast small but hardworking truck fleets. These carriers get their income from charging invoices to their customers, but small carriers can’t afford to wait long for those invoices. So, freight capital factoring may be done to smooth out the cash flow. Business factoring services such as Advance Business Capital and the like can be quite helpful for this. What is an invoice advance loan? And what is a factoring company?
Running a Truck Carrier Company
A truck carrier company may make use of freight capital factoring because it will have only shallow cash reserves on hand, and expenses to pay. These carrier companies make use of third parties such as freight brokers to arrange a deal between them and shipper customers, but that’s only for the delivery itself. A shipper may take 6-90 days to pay an invoice, and such invoices are sometimes late. Put simply, a carrier can’t afford to wait that long for the money since the company has its own expenses to face, such as staff salaries or wages, truck maintenance and refueling, an advertising campaign, and other expenses. In fact, without freight capital factoring, a smaller truck company might go entirely bankrupt while waiting for an invoice payment, so that carrier may make use of these freight capital factoring firms as a third party. Such freight capital factoring services can offer business loans to companies that have sufficient business credit, and this can be a lucrative arrangement for all involved.
Taking Out an Invoice Factoring Loan
When a carrier company contacts a freight factoring firm and hires its services, that factoring firm will first purchase the right to collect 100% of that invoice’s value when it is paid by the shipper customer. In the meantime, that factoring firm will give the carrier client a large, up-front loan based on around 70-80% of the invoice’s total value or so. The immediacy of the loan is important, since this large loan helps smooth out the carrier’s cash flow problems and allows them to cover their expenses.
Later, when the shipper does pay the invoice in full, the invoice factoring firm will collect 100% of the invoice’s value as arranged earlier. Now, with cash in hand, the factoring firm will give the carrier another, smaller loan, and these loans may add up to 95-98% of the invoice’s value, but not 100%. Rather, the factoring firm keeps the remaining 2-5% of the invoice’s value as a fee for services rendered, and their source of income. For most carrier companies, most of all the smaller ones, sacrificing 2-5% of the invoice’s value in exchange for a large loan is a good deal to take. A good business credit score may make the loan’s terms more friendly, too.