Why Carriers Turn to Freight Factoring Companies
Across the United States, manufacturing centers and farms are hard at work producing American goods ranging from wheat and dairy all the way to cars, furniture, and kids’ toys. But it is not enough for these goods to be built or grown; a full logistical network is needed for the safe and timely storage and transportation of these goods. This involves a client shipper working with carrier companies for transport, renting warehouse space, and even making use of geospatial data analysis to track the movement and location of cargo trucks across the United States today. A shipper hires a carrier, and a carrier will take on a full load of goods to transport somewhere on a schedule. Other parties may be involved, too; a freight broker can arrange a meeting between shippers and carriers, and freight factoring companies such as Advance Business Capital and others of its kind help smooth out the finances. Why get an invoice advance loan from Advance Business Capital, for example? Can invoice funding companies really help out?
The Work of a Carrier
One of the parties involved in the work of Advance Business Capital and the like are the many carrier companies found across the United States today. Many of them are on the smaller side, but they add up to form a formidable industry that is vital for the production of goods. Now in the 2010s, around 12 million trucks, rail cars and locomotives, and seagoing vessels are used all over the American transportation network, and many are in small fleets belonging to modest but hard-working companies. The United States is largely a nation of small companies, over 28 million of them, and plenty of those are carriers. These carriers typically make use of trucks, which are much more affordable for shippers to hire than trains, and trucks can go to many places that trains cannot reach. Some trucks are designed for specialized work, such as a reefer that can carry cold-sensitive items, or a tanker for carrying oil or even liquid nitrogen. Some carrier crews have special training from OSHA to handle hazardous material.
A carrier earns its income from charging invoices to its clients after a shipment is done, but even if paid on time, an invoice’s payment may not arrive for 60 to 90 days. And certainly, many invoices end up being paid late. This is an issue because carriers have their own expenses to cover while they are waiting for invoices to be paid, and these range from fuel and maintenance for trucks to crew salaries and marketing campaigns. These smaller carriers don’t have cash reserves to fall back on while waiting for invoices to be paid, and a company may go bankrupt without factoring companies such as Advance Business Capital to intervene. These are money lending services that can help smooth out a carrier’s cash flow and prevent bankruptcy. How might this work?
The Work of Factoring Companies
A freight factoring company is one that lends money to business clients, most often carriers who need help with their cash flow. Once a carrier has completed a shipment for its client and an invoice has been charged, that carrier will then turn to business factoring companies in its area and look for one to make a deal with. Once a factoring company agrees to make a deal, the factoring company starts by purchasing the right to collect 100% of the outstanding invoice’s value. Now, the factoring company may give the carrier client a large up-front payment of the invoice’s value, such as 70-80% or so. This quick money allows the carrier to pay its many expenses while waiting for the invoice to be paid, and the timing is important here. Smaller carriers simply cannot afford to wait for that money.
Once the invoice is paid, the factoring company will collect 100% of its value as agreed, and the factoring company will give another, smaller percentage of the invoice’s value to the carrier, adding up to 95-98% or so. The factoring company will keep 2-5% of the remaining value to itself as a fee for its services and the source of its income. The carrier trades that 2-5% for quick up-front money, typically a good deal to make.