Top 10 Ways Freight Bill Factoring Is Different Than a Bank Loan

If you’ve been in the transportation industry for a while, you know that sooner or later every business needs financing. The thing is, most transportation business owners believe that only a bank can give them a loan.

This is far from the truth. There are several types of financing options available to transportation businesses – options that are much faster than a bank loan. One of the most effective options available is Freight Bill Factoring.

Why Freight Bill Factoring Is Better Than Bank Financing

It has become increasingly harder to secure working capital from traditional sources. However, if you need to get cash quickly with minimum hassle, freight factoring is an excellent option. As the name suggests, the factoring company gives you a cash advance based on your accounts receivable invoices.

Freight bill factoring allows you to access cash against your current and ongoing customer invoices. You will work with a factoring company (also known as factoring partner) who will give you working capital, and even collect your accounts receivables in return for a small fee.

Here are 10 major ways in which freight factoring can prove to be a financially smarter choice, as compared to a bank loan. 

No More Long Waiting Periods – Get Fast Approval

Banks are infamous for taking several weeks to approve or reject a loan application. After filling seemingly dozens of forms and providing thorough documentation, there is no guarantee that the bank will approve your loan application. And if they approve you, it can take months for the loan to come through.

Time lags like this can be detrimental to your business operations. If you are in a tough spot, you may not have 90 days to wait for the money to come through, especially if you need to make deliveries or pay your employees.

On the other hand, freight bill factoring is simple. As soon as your invoice is verified by the factoring company, you receive the money within 24 hours. You get an amount upfront (up to 95% of the invoice amount) while the rest of the money stays in reserve until your customer makes the payment.

Creditworthiness, Not Credit Score

When you apply for a loan, the first thing the bank will look at is your credit score.

But a factoring company considers the creditworthiness of your customers before putting a value on your invoice. This way, you get the cash advance even if your credit score is not much to brag about. When you decide to factor your invoice, you are always going to get paid for your hard work, and always have cash flow to run your business without a hitch.

Low Costs, No Interest

With a bank loan, your payment terms, interest rate, and loan amount can significantly increase the total cost that you must pay back.

Freight bill factoring, on the other hand, allows you to get cash upfront so there are no monthly payments or interest payments to be made. This is because the funds you receive won’t be a loan; you will be selling your invoices for work (that you have already done) at a little discounted rate.

Less Risk, Less Stress

Bank loans always come with a certain risk. If you do well, paying back the loan may not be an issue. But if your business doesn’t go in a profitable direction or you have an unexpected expense, you can face hefty late fees, or worse, insolvency.

There is no such risk with freight factoring because you are simply receiving your own money sooner. And since there is no debt, there is no interest either.

Quick Way To Scale Your Business

Unlike a bank loan, you can take advantage of freight bill factoring as many times as you want. If you arrange to continually sell your invoices to a factoring company, you won’t need to fill out the paperwork again and again.

As long as your clients pay reliably and you meet the requirements, you can make freight factoring a regular part of your business. In fact, the more you sell your invoices, the more amount of money you’ll be able to get in advance.

This gives you the instant ability to borrow more, and grow your business at an exponential rate. You will never outgrow your line of credit with a factoring company, unlike a traditional bank.

With such easy and quick access to funds, you can scale your business way faster than your competitors who are still relying on bank loans.

No Other Assets Necessary

When you decide to go for factoring your invoice, you won’t need any pricey inventory, equipment, or real estate to give as collateral. All you’ll need is your customer accounts receivable, and that’s it.

In other words, you don’t need to offer your personal home as collateral, which is sometimes the case with bank loans.

Continuous Cash Flow

If you need to urgently order products, buy supplies, repair important equipment, or make payroll, factoring can be easier and faster to secure than bank loans. Generally speaking, you can get the money within 24 hours of submitting your invoice. 

Whatever it is that your business needs cash for – temporary expense or longer-term solution – factoring can come to the rescue. The truth is, every business eventually runs into the need for more cash than is available at that time. With factoring, you can have cash released to you as soon as new orders are invoiced.

You won’t have to wait for customers to make payments any longer. Your cash cycle will get really shorter as you’ll be able to receive that payment from your factoring company in as little as 24 hours, instead of 30,60, 90, or more days.

Get Larger Funding

With bank loans, lending power is limited as it depends on your credit score and collateral (among other factors). But with factoring, you can get as much as your accounts receivable allow, which can be almost unlimited.

The factoring company looks at your customer’s credit strength and your accounts receivable to determine how much you can borrow. If your customers are financially strong, and you have ongoing invoices, you can get significantly more money than you’d qualify for with a banking institution.

Spend Your Time Focusing On Your Business

Searching for financing, comparing different bank loans, and then applying for a loan (and waiting for approval) is a time-consuming process. Meeting with the bank loan officer and submitting all the documentation can take up a lot of your valuable time that would be better spent on other aspects of your business.

With factoring, you will only have to complete the application process once. After that, you can factor your invoices regularly, without having to repeat the whole process. You will not only improve the cash flow but also save a lot of time.

And that’s not all; your factoring company will process your customers’ invoices and collect payment as well. These are also time-consuming activities, and since you and your team won’t have to do it anymore, you can focus on things like building new client relationships.

Protect Against Bad Debts

Your factoring company will also perform a credit check on your customers. This will give you a better understanding of your customers’ creditworthiness. As a result, the quality of your accounts will improve, and so will your business’ debt security.

Some factoring partners also provide a “non-recourse” factoring option which essentially means that the company will bear the risk if any of your customers fail to pay the invoice. This gives you additional protection against bad debt – something that can make a world of difference for a small or medium-sized transportation business. 

Freight Bill Factoring Is A Better Option For Small- & Medium-Sized Trucking Companies

Bank loans or credit extensions have always been the most commonly-sought financing option for businesses in the transport industry. While this may be a feasible solution in some situations, it doesn’t make much sense for a small trucking company.

If you own a small trucking company, the points discussed above make it clear that bill factoring will be a better alternative for you. A factoring company can offer you a “quick payday” by advancing your funds against your freight invoice. Once your client pays the invoice in full, the transaction will be settled.

And considering the ongoing pandemic via the Wuhan virus, finding business funding has become more challenging these days. We know that relationships with banks are crucial, but sometimes bank loans simply don’t work out.

Here is what freight bill factoring offers:

  • No sign-up fee
  • No personal credit check (you could have the worst credit history, and you can still qualify)
  • No long-term factoring contracts
  • Get up to 95% of your invoice amount upfront
  • Get funds directly deposited into your account within 24 hours of invoice verification
  • Even start-ups are eligible!

If you don’t know how to get started or you’re having a tough time choosing the right freight factoring partner, a professional “matchmaker” (like EZ Freight Factoring) can help. With factoring support from a reliable partner, you can ensure that your transportation business runs smoothly. You can focus on growing your business and achieve your financial goals most effectively.