Every business can run through a difficult situation that involves clients who are taking a long time to pay their balance. Some businesses can survive while waiting to receive the money from the unpaid invoices, but some require immediate cash in order to keep the business open.
Luckily, there are great financial tools that you can use to help your business grow without going into debt due to clients taking months to pay you for the services you provided. The best way to get paid immediately for your work is by freight bill factoring your unpaid invoices.
Factoring your unpaid bills will always be a dependable option for a consistent flow of cash, no matter what the economical situation is. Some freight bill factoring companies such as ezfreightfactoring.com can offer a free quote for new clients who are interested in knowing how much it will cost.
If you have never heard of freight bill factoring, don’t worry! This article will tell you everything that you need to know before making the best decision for your business.
What is freight bill factoring?
Freight bill factoring is considered a financing tool that gives you a steady flow of cash from selling your unpaid invoices to a company that will buy it at a discounted rate.
Freight bill factoring is not a loan, it is simply a process that helps businesses of any size to receive immediate cash to prevent it from shutting down. When a business has to wait months for a client to pay their invoice, it could cost them a lot by not being able to grow their business or hiring more employees.
A freight bill factoring company will buy your unpaid invoices for an amount that could be 5% less than the full price of the bill. Once you agree to sell the unpaid freight bills, you will receive the cash within a day or two and the factoring company will wait for your client to pay them the full price of the invoice.
What are the different options for freight bill factoring?
Freight bill factoring offers two types and they are recourse or non-recourse factoring. Before choosing between the two main types, you must know the differences and what the consequences are for each option.
Recourse factoring
Recourse factoring is the most common choice for companies but it is considered a risky choice as well. When you decide to factor your invoices with this option, you will be responsible if the client never pays for it.
Choosing recourse factoring is great for your business, as it will cost you less money when you sell the invoices but you will accept full responsibility when the factoring company is unable to get the money.
The client who owes the money will be given a certain time period to pay off the bill and that would typically be 60 to 90 days. If the company doesn’t get paid for that invoice within the time period you will be required to give back the full amount you were given for it.
Each freight bill factoring company has its own rules when it comes to recourse factoring. If the invoice they purchased from you doesn’t get paid, they might ask you to provide them with a different invoice to factor, deduct the amount you owe them from other invoices, or ask you to pay them back.
Non-recourse factoring
Non-recourse factoring is when the freight bill factoring company buys the unpaid invoice from you without any responsibilities. This means that when you sell your unpaid invoices, you will not be required to give back the money to the factoring company if the debtor doesn’t pay them.
When you choose non-recourse factoring you can sleep comfortably knowing that the cash you were given when you sold the unpaid invoices is fully yours and you won’t owe any money if the debtor is unable to pay the bill.
While non-recourse provides you with guaranteed money, it can be more costly than recourse factoring. Typically, you will sell your unpaid invoices for 95% when choosing recourse factoring, but with non-recourse factoring it will be less than 95% of the total amount.
What is better, recourse or non-recourse factoring?
Each factoring option has its own pros and cons, it will be up to you to decide which choice works the best for your business. If you have clients who are constantly late when it comes to paying the invoices but are guaranteed to always pay it off within 60 to 90 days, then recourse factoring will be a great option for you to save money.
On the other hand, if you have a new client or a client that takes longer than 90 days to pay off the full invoice then non-recourse factoring is the best way to ensure that you are receiving a steady flow of cash.
Overall, it depends on your business and the type of clients that force you to factor the invoices.
What are factoring terminology?
Factoring terminology is used to describe the different ways unpaid invoices are processed. Here are the basic terminologies in freight bill factoring:
- Spot factoring: Also referred to as invoice factoring, it is the process of choosing which invoices you want to finance by selling it to a third party for a lower percentage than the total value.
- Reverse factoring: The amount that you will receive from the factoring invoice once it is paid. For example, when you factor an invoice for $3,000 with an 80% advanced rate, you will receive $2,000 as the advance. Once the invoice is paid you will receive the reserved amount after the factoring fee is taken out.
- Factoring fee: The amount that will be taken out of your total invoice by the factoring company as a fee for the work they are doing for you.
- Debtor: The term used to refer to your client who is responsible for paying the invoice you are factoring.
- Advanced rate: The percentage of the invoice that the factoring company pays you for them.
- Aging report: A report that shows you all of the clients and the invoices that haven’t been paid.
Understanding these terminologies will help you make the right choice when factoring your invoices, as well as being completely informed when you receive a report from the freight bill factoring company in regards to your account and the invoices.
What are the benefits of freight bill factoring?
Using a freight bill factoring company can do wonders for your business and give it great opportunities to grow larger. Here are the top benefits you will get from factoring your unpaid invoices:
No more debt
Freight bill factoring can save you from taking out another loan from the bank that will cause you to be in debt. You can enjoy a risk free option with invoice factoring that will increase your income without impacting your credit score, as well as helping you pay off your current debt!
Takes care of financial responsibilities
As a business owner, you have a lot of financial responsibilities that includes paying your employees bi-weekly without delays. With factoring your invoices, you will be able to pay off all of your bills, your employees, and have enough money to use it to buy more trucks or hire extra employees to help the business grow.
Immediate cash in your hands
The great thing about freight bill factoring companies is that they will pay you immediately for the invoices you want to sell. You won’t have to chase your clients who owe you money for months, as the factoring company will take care of it for you.
Most truck factoring companies will give you money in your hands within 24 hours.
Helps you focus on business growth
It is difficult to grow your business without a steady flow of cash or when you are focusing all of your efforts on trying to collect the money your clients owe you.
Factoring your invoices is a wonderful investment for the growth and success of your company. It will give you a lot of time to develop strategies to increase the profit of your business, as well as ideas to make it more successful.
It is easier to plan ways that can grow your business when you have instant cash going in your bank account.
Gives you a lot of flexibility
When choosing a freight bill factoring company you will get a lot of freedom and flexibility. You can choose the amount of unpaid invoices you want to factor without worrying about limits.
Some factoring companies allow their clients to choose which client’s invoices they want to factor and make a decision based on the value of each invoice. It’s important to make sure that the company gives you that option to avoid any conflict.
Each truck factoring company has its own terms when it comes to the volume of unpaid invoices that you can factor but many companies allow you to choose.
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