Freight is a vital component of the transportation sector, and the transportation sector is itself an important part of the US economy. The transportation sector generates revenue employs millions of workers and moves goods and people, consuming materials and services that are also produced by other sectors of the economy — therefore moving the entire machine forward. The vast range of transportation services includes for higher freight carriers, freight forwarders, private transportation providers, logistics providers, as well as firms that service and maintain fleet vehicles. In the last decade alone, transportation-related goods and services accounted for more than 10% of the US gross domestic product (over $1 trillion).
Despite the vast amounts of money passing through the trucking industry, many trucking companies still struggle to maintain proper cash flow. One of the major hurdles is maintaining proper accounts receivable, which often translates into timely invoice payment. But since a 90-day turnaround is often the norm in the trucking and transportation industry, how can companies hope to stay on top of daily overheads with so much money owed to them? Keep reading to learn how truck drivers can reduce costly bills and immediately generate positive cash flow by turning unpaid invoices into immediate funding through a process called Freight Factoring.
Freight factoring, a specific form of accounts receivable financing — is the solution most trucking companies turn to when they need immediate funding.
Turning Accounts Receivable Into Cash
Freight factoring is a powerful and versatile financial tool that is used in the trucking and transportation industry as well as the logistics industry. Whether you are a large trucking organization, a single owner operator, a freight broker or even a large 3PL provider, freight factoring can help you manage your cash flow issues quickly, easily, and effectively. Freight bill factoring is the process of selling your outstanding invoices to a third-party — called a factor — in exchange for immediate cash advance. The freight factoring company to whom you sold your invoice will then be responsible for collecting payment from that customer. The factor will advance you upwards of 97% of the value of the invoice minus a small factoring fee. The remaining balance is withheld until they collect on the invoice. When the invoice clears, they refund you the remaining 3%. This allows trucking companies to meet their overhead costs at a small fee, and shifts the responsibility of collection to a third party.
Maintaining Strong Cash Flow Statements
Financing also allows companies to keep your cash flow strong. Without positive cash flow, your company will be unable to meet its financial obligations, which could in the future lead to a cash crunch or even insolvency. The measurement of cash flow is a necessary parameter on the viability of your company, and its financial situation overall. Without positive cash flow, there is no way a company can meet its financial obligations and stay afloat. Because you never know when someone’s going to look at your cash flow statement, it pays to keep it in working order at all times. The cash flow statement consists of three major categories: one operating activities, two investing activities, and three financing activities. The statement of cash flows also lists your cash influxes — both in and out — during a reporting period.
A cash flow statement provides vital information that is unavailable from other financial statements, such as the income statement and the balance sheet. The main purpose of this statement, according to the Financial Accounting Standards Board — or FASB — is to offer up information about the changes of the company’s cash or cash equivalents in any given accounting period. Keeping your cash flow in the black shows that your business is liquid and solvent.
In order to keep your books balanced, as well is keeping your cash flow strong allowing you to invest in future growth opportunities as well as manage overhead, freight factoring is the ideal solution.