Venturing into the freight broker business has its highs and lows. One of the significant lows is cash flow challenges. The freight broker companies will always find themselves in a fix on how to balance cash from shippers and expenditure to the carriers.
In most cases, shippers are only willing to pay within 30 to 60 days. Since the freight brokers don’t want to lose clients, they agree to these terms. On the other hand, carriers want their cut as soon as possible. In such a financial crisis, considering top factoring companies for freight brokers might be the best way out.
Why you Should Consider Invoice Factoring
Cash flow problems require almost instant solutions, making it ideal to go for international factoring service.
Freight invoice factoring is available to transport companies. The idea is, giving freight brokers an advance on invoices that will take long to actualize. Therefore, instead of waiting for shippers to pay, brokers can run operations using the advance, hence nothing is interrupted.
It is an incredibly reliable source since you can access it as long as the invoices have been approved. The factoring company can pay as much as 90% as the initial installment, while the rest is received once the shipper has paid.
Ease of Access
Compared to other financing options, factoring financing ranks high in terms of ease of access. All brokers need to do is prove that the shippers they are working with have good credit. Besides, the freight brokers must have a clean record when it comes to liens and judgments.
Factoring is accessible to brokerages of all sizes. Even start-ups qualify for invoice factoring. Therefore, for brokerages looking to grow their business, this could be a good option.
The amount given to freight brokers depends on their sales volume, as well as the reputation of their shippers. Therefore, by improving their sales and working with good shippers, they can qualify for more.
When to Consider Invoice Factoring
There are other ways out of a cash flow crisis. However, it is good to weigh options and decide when factoring is the best option for any freight company.
A freight company should only consider factoring if it can’t afford to wait for the shippers to make payments. Most shippers will make freight companies wait for around 30 to 60 days.
Therefore, in case waiting for that long will cost the freight company great opportunities, then considering invoice factoring is the best option.
However, an invoice factoring should be a last resort. A factoring company should go for it only when it can’t get a loan or any other line of credit.
Also, top factoring companies for freight brokers serve best if the business is recording fast growth. That way, the company can afford to pay for the factoring fee. Also, ensure that the shippers are reliable before going for invoice factoring to avoid conflicts in the future.
Steps Involved in the Factoring process
Notably, the factoring process is quite easy. To start with, the freight company needs to make a sale to the shippers and issue out an invoice. The invoice must be due in 30 to 90 days. After the sale, the freight company then has to create an account with a factoring company, followed by submitting the invoice to the factoring company.
Once the factoring company has received the invoice, it finances the freight company on an agreed rate. Once the shipper pays the invoice, it goes to a reserve account, where the factoring company cuts its share before wiring the rest to the freight company’s account.
Common Myths about Factoring Invoice
All along, people have the wrong impression of factoring invoices.
The most common one has to be the belief that invoice factoring is a reserve to big businesses. However, that is far from the truth. Even start-ups can work with top factoring companies for freight brokers.
Additionally, there is a myth that going for invoice factoring will tarnish a business’s name.
A business does not need an established credit history to qualify for invoice factoring. Once it has proven that its shippers are reliable, then that is good enough.
No freight company should let cash flow problems affect their operations. Working with top factoring companies for freight brokers could be the secret to smooth operations.