If you are spending too much time managing your trucking company's accounts receivables, it might be time to turn to factoring. Factoring is the process of selling accounts receivables to a third party who assumes all duties related to the accounts once they purchase them. Not only will this improve the cash flow of your trucking business, but it will also help reduce the time you are required to spend managing your accounts receivables.
How It Works
When you factor your accounts receivables, you sell the accounts to a factoring company. The company pays you for the accounts and charges a fee for the services, which are usually around 1% to 5% of the balances. When the sale is made, the company may only give you a percentage of the total invoices, but the percentage can be as high as 90%. When they collect the debts, they will reimburse you the remaining balances.
Factoring Eliminates Bad Debts
When you offer freight services on account, there is always a chance the customer will not pay his or her bill. If this happens, you will have to write the amount off as a bad debt. Bad debts cost your business money, because it is money you are owed but will never collect.
Accounts receivable factoring eliminates this risk. When you sell the accounts, you will immediately receive almost the entire balance of each one (depending on the percentage the factoring company offers up front). If a customer does not pay the debt, the factoring company loses the money, instead of you losing it. This is a huge benefit.
Factoring Frees Up Your Time
Finally, when you factor your accounts, you will no longer be responsible for them. You can mark the accounts "paid" and move on with your other duties. You will never have to worry about past-due accounts, and you will never have to deal with negative cash flow problems.
The factoring company you use may even give you tips about screening potential clients. These tips are designed to minimize bad debts, and this is important to factoring companies. If you continuously sell accounts to a factoring company that turn into bad debts, the company may raise your rate. This means it will cost more for you to sell your accounts, but you can reduce this risk by using good strategies when screening credit applications.
Factoring is a great process, especially for trucking companies that experience cash flow problems and depend on outside payers for deliveries and products. To learn more, contact a factoring company for trucking today.
Share8 December 2015
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