The freight industry earns $7.91 billion in annual revenue. Unfortunately, its business systems can take anywhere from 30 to 90 days to process payments. This issue is one of its drawbacks in the industry, and many freight companies have to deal with delays in finances.
A solution to this delay is freight financing services that allow businesses to receive payments right away. It is a way of outsourcing a major part of your accounting, and it has additional benefits. Let’s see how it works.
How Does Freight Factoring Work?
A freight factoring company will take your invoices and pay them right away. You’ll receive the total minus percentage fees, usually around 2.5 to 5 percent. Other payment terms may apply, and they differ from company to company. The factoring company will collect your payments when the client or broker pays within the agreed duration.
The factoring service provider also serves a few functions in addition to covering your invoices. They screen the clients and brokers you are working with to rate their payment turnover and trustworthiness. The company also takes care of the extraneous work of follow-ups and payment processing. These services take a significant share of work off of your accounting.
You can operate your business and carry on through the extra 30 to 90 day wait period with the payments already collected. It covers that too-long payment timeframe to maintain cash flow, daily operational expenses, payroll, supplies, and bills, allowing you to focus on running your business.
When it comes to a factoring contract, there are two main conditions you need to understand. The first is recourse factoring, which means the company can collect from you if your client fails to pay them or delays payment fu