All industries suffer from an economic downturn. The level of capital available for investment or expenditure decreases. Supply stagnates, demand falls and businesses lose money. Hard decisions have to be made by business owners that often hurt their own prospects. A retailer cuts back on advertising expenses to save money. A bookstore lays off some unnecessary workers and lowers prices to sell off inventory faster.
What’s worse, high fuel prices raise costs for everyone. Businesses in the shipping industry, like trucking companies, are hit especially hard. Rising fuel costs force freight prices to rise, leading to a decrease in freight orders. Profitability falls and the business must restructure its revenue streams to survive. Lower profits translate into less vehicle maintenance and even possible layoffs. How can trucking companies survive in this environment?
Freight bill factoring is a technique designed to bridge the gap between when customers pay and when costs are due. Often, customers pay after receiving a load, which can be up to three months. Trucking companies need to pay their costs in a much shorter time frame. Freight bill factoring helps solve this problem.
A trucking company can sell it’s invoices to a factoring company at a discounted price. The trucking company no longer has to worry about collecting on the debts their customers owe them. In exchange for a discounted price, they receive cash immediately. Freight bill factoring helps trucking companies stay in business by speeding up their cash flow. Freight bill factoring is similar to credit card companies selling their debt to collection agencies. Freight companies sell the debts they are owed to a third party, who assumes responsibility for collection, at a discounted price. There is a catch to this arrangement, and it depends on whether the factoring company did a recourse or non-recourse factor deal.
A recourse factor deal means that the freight company is liable for any uncollectible debts, while non-recourse means the freight company is immune from such debts. The downside is that factoring companies pay less for non-recourse factoring.
Fuel advances also help trucking companies. Less an additional fee, the factoring company can front the fuel the trucking company needs to continue carrying loads. Fuel advances combined with factoring let trucking companies stay alive when fuel prices are high.