Some businesses make their profits from creating manufacture goods ranging from cereal to kids’ toys to cars. Others make their business with selling services such as cleaning, or an employment agency may be hired by client companies. Other companies are carrier companies, and they will charge their customers invoices for the use of freight-delivering vehicles such as trucks, trains, or even sea vessels to deliver all kinds of finished goods or materials ranging from coal to car parts to water. But invoices are often paid after 30 to 60 days, if they are on time at all; other times, invoices may be paid late, in in many cases, invoice funding needs to come much sooner for a carrier company. What to do? A third party can be hired: commercial factoring companies. They will act as a sort of money lending service to the carrier company6, and an invoice advance loan can save a client company from serious financial issues. Commercial factoring companies can be contacted by all sorts of carriers to do business, and if a business’s credit is good enough, a mutually beneficial deal can be had. The best invoice factoring can be a lifesaver.
The Basics of Invoice Factoring Services
So, what is it that commercial factoring companies actually do? They act as a sort of money lending service to a client carrier company, and there are plenty of carriers who need this help. After all, there are nearly 12 million trucks, rail cars, locomotives, and other vessels delivering goods and materials across the American transportation network, and the carrier companies need money fast to cover expenses like paying off purchased vehicles or maintenance jobs. But even if an invoice is paid on time, it may be be too late. This is where commercial factoring companies come in.
To sum it up, commercial factoring companies will buy the rights to the collection of a carrier company’s invoice and offer money up front for that client. Once an invoice has been sent, a carrier company may contact any of the commercial factoring companies and ask for a partnership where that invoice is concerned. The factoring company will acquire the rights to collect 100% of the invoice when it arrives, and until then, the invoice factoring company will give the client carrier company a percentage of the invoice’s value, often 70-90% or so. This immediate payment can be vital for the carrier company, which cannot afford to wait a few months to collect the invoice itself. Meanwhile, once the factoring company collects the invoice from the customer, it will give another portion of the invoice’s value to the client company, and keep the last bit of the money for itself. Anything from about 2-5% of the invoice’s value is kept by the factoring company, and the carrier company collects around 95-98$% of the value withe the combined up-front money and the money received when the invoice is paid by the customer.
In short, the carrier company exchanges 2-5% of the invoice’s total in exchange for getting the money much faster, and this may be crucial for smaller companies that do not have cash reserves to fall back on while they are waiting for an invoice’s money to arrive. Expenses such as employee payment, fuel for vehicles, maintenance for those vehicles, or paying off purchased vehicles such as trucks or airplanes may not wait for an invoice to arrive, so the carrier company needs a faster solution. And seeing how there are nearly 28 million small businesses found across the United States, there may be plenty of clients out there for factoring companies. Something to note about this is that a factoring company may not automatically get on board with a carrier client that asks for assistance. Businesses have their own scale for credit scores and trustworthiness, and a factoring company might only work with a client company whose business credit is good enough. A company that often plays fast and loose with loans and debts may have trouble attracting a factoring company that is willing to do business with it, something for the managers at a carrier company to keep in mind, especially those at smaller companies that lack a deep treasury.