Truck drivers are known for, well, driving trucks, but that’s just the tip of the iceberg when it comes to a trucker’s duties. When you operate a trucking company of your own, you are simultaneously a freight broker, a business manager, a hiring manager, an accountant, a decision maker, and of course, a truck driver. Luckily, once you start bringing in revenue, you can outsource some of these duties, freeing up more time to focus on what you do best – drive. One of the first tasks to consider hiring a third party for? Collecting invoices. If you want to earn a living, you also have to get paid, which can take up a lot of time – especially when clients refuse to hand over the money you are owed. That’s where a freight factoring company can be a huge asset.
What Is A Freight Factoring Company?
When you complete a job, you get paid (at least, you should). The question is, when? Most companies don’t pay the truckers hauling their freight immediately. Some shippers can take over 90 days to pay out their invoices, which can make it difficult for drivers to keep their trucking business running in the meantime. However, there is a way to get a near-instant payment for your work, and it involves using a freight factoring company. Factoring companies “buy” invoices from trucking companies at a discount, pay the trucking company within a few days (many companies pay drivers immediately), then collect the invoice from the client themselves. The appeal of this for the trucking company is that they don’t have to wait to see their money, and the appeal for the factoring company is that they get a percentage or fee for their involvement.
How Does The Process Work?
- A business hires you to deliver goods from point A to point B.
- The factoring company does a credit check to determine if the customer can be trusted to pay what they owe.
- If the customer is deemed credible, you “sell” the invoice and send over all relevant paperwork to the factoring company.
- The factoring company pays you the majority of the invoice immediately.
- The customer pays the factoring company directly (the factoring company may need to chase payments).
- The factoring company sends you the rest of the invoice amount, deducting their fee (typically 2-5%).
The Benefits Of Using A Factoring Company
Gets You Your Money Immediately
One of the most common reasons businesses fail is a lack of cash flow.
Even if you should be able to cover all of your expenses based on the jobs you’ve completed, if your bills are due before your invoices are paid out, you could be left in a sticky situation. To make matters worse, more than a quarter of freight customers don’t pay trucking companies on time. Because of this, many trucking companies end up taking out bank loans or credit cards to keep the lights on, so to speak. The company could end up spending thousands in interest payments to keep this practice up, which isn’t sustainable in the long term.
The key is to find the right balance between paying the discount to the factoring company or paying interest on lines of credit. When working with a factoring company, you’ll typically get your earnings within a day of when the job was completed, even if the customer ends up paying late. This provides truckers with the cash flow they need to stay afloat, keep earning money, and grow their business between invoice payments. The best part is, this doesn’t qualify as a loan, so it won’t show up on your records as a debt. In some cases this might make qualifying for a future loan easier, as you’ll be able to show consistent cash flow without any debts.
Factoring companies take care of all of the additional duties involved with collecting invoices, such as making follow-up calls, chasing collections, and checking the status of payments. They’ll even resolve disputes for you. Plus, instead of sending multiple invoices to multiple customers, you can send them all to the freight factoring company, thus reducing the amount of time you spend on accounting work.
Reduces The Risk Of Bad Debt
If you find out that one of your clients is unlikely to pay after completing the job, you might find yourself facing bad debt, which could land you in trouble. If the customer who owes you money files for bankruptcy or is in any other way incapable of paying you back, you’ll likely be the one absorbing the loss. Freight factoring companies help prevent this from happening. The factoring company should provide free credit checks on each customer of yours they work with, so you’ll be able to know if they can be trusted to pay you (and if they typically pay on time). However, sometimes even creditworthy customers fail to pay, which is where non-recourse factoring can help. If you opt to work with one of these companies, you’ll still get your money even if the customer who owes you can’t afford to pay you. As you might imagine, this non-recourse factoring is more expensive (they charge a great discount rate) in turn for reducing your risk with unpaid invoices.
When You Can Start Using A Factoring Company
To determine if you qualify, freight factoring companies will look at your:
Typically, the more you factor the less you’ll have to pay. Whether the company chooses to work with you will also depend on how many different clients you work with.
How Much Of Your Invoice Is Needed To Operate Your Business
If you need close to 100% of your invoices to operate your business, working with a freight factoring company may not be the right choice. They’ll likely only advance a percentage of the funds right off the bat, and they’ll charge you 3-5% of the total invoice amount.
Before You Start Hauling Freight, Pay The HVUT With i2290
Before you can hit the roads and begin making money, you first have to pay the Heavy Vehicle Use Tax. While filing the old-fashioned way – sending in your forms and payment by mail – is certainly an option, the process tends to be time-consuming, frustrating, and not worth the effort. Instead, e-file with i2290! With the help of our software, filing Form 2290 and paying the HVUT is quick, easy, and hassle-free. All you have to do is answer a few questions about your business, and we’ll automatically determine your taxes for you. The entire process takes just minutes, and you’ll receive a stamped Schedule 1 almost immediately. Ready to get started? Create an account with i2290 today!