Why Truck Companies Take Out Loans

Delivering goods across the United States, and exporting them to foreign trade partners, is the job of the nation’s transport infrastructure. While the United States is home to a massive production industry for finished goods like cars, books, furniture, and more, these factories can’t deliver goods on their own. Instead, shippers will hire carrier companies to deliver those goods from factories to warehouses and to distributors and retailers alike. A number of different vehicles are used for this sort of work, depending on the quantity of cargo and where it’s going. Estimates say that around 12 million trucks, rail cars, locomotives, seagoing vessels, and more are in the United States today and hard at work delivering all sorts of cargo.

These vehicles are not purchased by factories, but rather, they are owned by carrier companies that are hired by those shippers to deliver the goods. Freight brokers may help arrange deals between shippers who need cargo delivered, and carriers who are looking for work. Planes are effective for expedited deliveries or going to places difficult to reach by land, and ships export goods around the world, such as to Europe, Japan, Australia, and more. Trucks, meanwhile, are often the best means of domestic, land-based travel in the U.S., since these vehicles are common, easily affordable, and can go nearly anywhere without needing railways or airports. These truck carrier companies charge invoices to their customers to make a profit, but invoices take time to arrive. Thus, a business invoice factoring firm may be hired to smooth out the cash flow. An invoice advance loan can save a smaller carrier from bankruptcy, in fact. What is a factoring company, anyway, and why get an invoice advance loan?

Running a Truck Company

Freight factoring companies and business invoice factoring firms are hired because truck companies rely in invoices that may not even be paid on time. Most truck carrier companies today are on the smaller side, having limited cash reserves and a small fleet of trucks to use for their customers. A small truck company, put simply, cannot afford to wait 60-90 days for an invoice to arrive, since that company has its own expenses such as fueling the trucks, maintenance and repairs, staff salaries, and more. A freight broker is a third party that arranges a carrier deal in the first place, but that’s not the only outside help that a carrier company can hire. The United States’ many small truck carrier companies may turn to business invoice factoring firms to smooth out their cash flow, and since this is a money-lending service, a carrier with a good business credit score will appeal more to these business invoice factoring firms.

Getting A Loan

Once a carrier company has reached out to a business factoring firm and gets approved for a loan, that factoring company will first purchase the right to collect 100% of the outstanding invoice’s value when the customer pays it. Now, the factoring firm will give the carrier client a large loan up front, typically around 70-80% of the invoice’s value or so. The timing of this is critical, since the carrier company needs money right away to cover its expenses while waiting for that invoice payment to arrive. This smooths out the cash flow and can prevent serious money issues such as bankruptcy.

Once the customer pays that invoice, the factoring company will collect all of it, as arranged earlier. Now, with that money in hand, the factoring firm will give the carrier client another, smaller loan, and all these loans may add up to 95-98% of the invoice’s value, but not a full 100%. Rather, the invoice factoring firm will keep 2-5% of the invoice’s value as a fee for services rendered, the source of its income. Meanwhile, this means that the carrier client exchanged 2-5% of the invoice’s total value for the immediacy of getting that vital up-front loan. In most cases, especially for a smaller carrier client, this deal is a sensible one to make. It is possible that a carrier firm with very good business credit may get better terms for that loan, too. Meanwhile, poor business credit may make it difficult to hire a factoring firm at all.