Freight broker factoring is different from conventional transportation. The drivers are paid directly on your account. The direct payment method provides assistance by preventing the drivers from filing a claim that could take the lead and also removes the burden from the broker so that he can shift his focus on growing his business.
Difficulties faced
Freight brokerage services are facing many problems, mainly the problem of cash flow, the primary reason being the slow paying customers. Brokers are always under pressure, they are sandwiched between the drivers and customers. Brokers need to be quick while paying to the drivers, but customers take one or two months to pay their bills. This results into the broker withdrawing reserved funds to meet the demands. It leads to scarcity of funds in the future.
Quick fix
One way out of this problem can be quick-pays by the customers. Though it is a productive strategy but it is unreliable. The customers become superior and the broker needs to be at the mercy of your clients making it more unpredictable.
A better option is the freight bill factoring. A factoring company acts as an intermediary who advances funds unlike the slow paying customers. It provides you cash which is needed for your business commitments while you wait for your customer’s pay.
Additional Benefits
A business is built on the foundation of finance. An incorrect financial decision can be an expensive mistake. There is a common misunderstanding among the business world that financing is the same for whichever company you run. This is false and should be avoided.
High initial advances
The transportation carriers are initially given huge advance amounts by the truck factoring lines. Almost 90% of the invoices are provided as advance. The maximum reach can be up to 95%.
Quick consents
Emergency of cash can be met by freight factoring. It usually takes less than a week to be applied and funded.
More load
It improves your cash flow and new customers enter increasing the load. The funds are available through quick pay. This in turn results into improved customer credit quality. You can thus determine the best clients with good payment habits.
Flexibility
This is one of the biggest but ignored advantages of using freight factoring. It should be implemented carefully. Though it is certainly beneficial for short term cash flow squeeze, but it can build up more load as new customers enter. The waiting period reduces as we do not have to hold on for 45 days.
Invoice Discounting
Invoice discounting is one of the ways to expand your business. It gives wings to your dreams and helps you grow. It is the simplest form of invoice finance. The unpaid invoices are taken to the lender who provides the cash on the percentage of the invoice’s value. Once the customer is done with paying the total amount, the lender gives you the remaining money, deducting his/her fees.
This is confidential, also called “confidential invoice discounting.” Your customers will not even realize that they are paying to the lender instead of you and that you are using a finance provider.
Boons and banes
Boons
It improves your cash flow as 80-90% of the advance amount is successfully converted into cash.
The unpaid invoices are submitted to the lender for advance cash and there is no need of any assets as collaterals.
Sales increases and the company do not have to worry about the liquidity issue.
There is complete confidentiality where the buyer and the supplier are completely unaware about the borrowings against the unpaid invoices.
It is justified for all. It is a win-win situation for all, the company as well as the customer. This also helps to build a strong relationship with the customers.
Banes
It can be considered as a stigma over the company. Complete reliability on it can be harmful for the image of the company in the eyes of the stakeholders.
Company should avoid it as long as possible and focus on short credit periods.
Climax
Factoring is one of the malleable financing solutions. It works very smoothly and reduces your burden.
Invoice discounting is one of the quick methods to meet the financial needs. But every coin has its two sides. It is advisable to not make it a regular routine. The key motive should be improving your marketing and management and bargaining with debtors for quick payments.
Invoice discounting is an effective way to upfront advances from the lender or a finance provider company. The freight broker factoring provides flexibility but is unreliable. It remains confidential where the buyer and the supplier don’t even know that you are borrowing from the lender. The sales and cash flow increases.
