Factoring is a process where you sell your invoices in exchange for immediate payment at a discount. Factoring companies keep the payable invoices, and the business houses get cash immediately. It is a quicker, easier and better way to avoid long or short- term debts. Invoices act, as equity for almost all businesses but to get working cash flow is readily feasible through recourse and non- recourse factoring. So, while starting a business, you have to keep a few things in mind, which are more important than your cash equity. Some of the things, which are counted as capital, are cash in hand, the line of credit and invoices.
So let’s find out what recourse and non- recourse financing is all about. When you use an invoice factoring, it is advisable that you should be aware of certain terms and conditions such as “who would be responsible for debts when customers are unable to pay?” But if you have recourse factoring, then the factor will not take the burden of the debts and will just collect the amount from you if the invoice is unpaid.
Recourse factoring is considered lower cost factoring as you continue to take the risk of the bad debts instead of surpassing them to the factoring company. This factoring is much easier to attain, and the invoice factoring also has less stringent rules about your business systems and the payment history of your clients. But if you have unreliable clients then you may have to pay back the amount along with the reasonable fees and interest. Thus, it is advisable to weight all facets of the situation before you opt of any factoring.
Non-recourse financing is quite similar to recourse financing. But in non-recourse financing, the funding company is held liable for receiving payment from the payable invoice. The factor accepts specific risks such as total disappearance but doesn’t insure against slow payment. This is the main reason that non-recourse factoring is more expensive. In non-recourse factoring, you don’t have to refund the advance to the factor, but you should pay interest for the particular period mentioned in the factoring agreement. The element takes all the rights to pursue the customer for the payment. It includes the right to take legal action also.
Both, Recourse and non-recourse factoring are quite familiar and most of the companies these days offer both these services to customers as both have proved to be the viable option to meet the cash requirements for small as well as big businesses.
Thus, it is critical to choose the best factoring keeping the current state of operations in mind. Similarly, it is essential to choose the appropriate invoice factoring company. You may find some factors charge small fees but offer you lower levels of customer service also; now this may end up being more expensive in the long run. Factoring companies have their requirements and whether a financing company is just right for you or not, could be found out by directly interacting with them.
Having to wait for weeks or months for your customers or brokers to pay for goods can have adverse effects on your business. Cash flow deficits emanating from uncollected debts make it increasingly difficult for your business to operate efficiently.
Freight factoring enables you to manage your cash flow and clear your expenses immediately and move to your next load. The factoring company, also known as the factor provides funds to clear your invoices then collects payments from your customers or brokers later for those fright bills. This is the ideal way of acquiring funds for your business without getting the business into debt.
Here is a step-by step of how factoring works:
(1)Once you have booked your load, send details of the load and the customers or brokers to the factoring company.
(2)The factoring company informs you whether if the customers are approved for you to get the funds.
(3)If approved you proceed to pull the load.
(4)Once you are empty send the Bills of Lading and all documents relating to the load to the factor.
(5)The factoring company will then initiate a deposit to your bank account the amount which is your billing amount less factoring charges.
But what if one or more of the customers do not pay for the goods? This is where matter of “recourse” or “non-recourse” factoring is considered.
Here the understanding between you and the factor is that you will buy back all invoices that go uncollected. This type of factoring is generally cheaper since you are agreeing to cover some of the risk involved.
This type of factoring allows you to sell all your invoices to the factor without having any obligation to buy back any unpaid invoices. Any losses incurred are absorbed by the factoring company leaving your business unscathed. Non-recourse factoring is more expensive compared to recourse factoring due to the risk that the factoring company has to absorb.
Freight factoring, or invoice factoring, is a way for you to get the money you need for your trucking company. The best part of using this type of system is that unlike banks, you get the money you need now.
There’s very little waiting involved, and you don’t have to worry about having perfect credit the way you would if you were dealing with a bank. Before you use a company like this though, there are certain things you need to know and certain things you need to do to find the company that is right for you.
Your first step is to search either Google Local or your favorite search engine for companies that offer this type of service. You want to search for “freight factoring company“, “invoice factoring”, etc. Choose the keywords you think will help you find the service you are looking for.
Next, you will want to choose several sites to review. Choose sites that offer contact information like email and a phone number. You will also want to see if the site has a FAQ (frequently asked questions).
A FAQ will help you get your preliminary questions answered. While you are reading, note any factors about that company that are important to you. This will help you eliminate companies until you find the one that you want to work with. Things to consider include:
-How fast you will receive your money and in what format (check, ACH, direct deposit, etc.)
-What additional services that company offers (credit checks of your customers, billing, collections)
-How much the service costs
-What size businesses does the company serve
-Which invoices will the company factor (you want to be able to choose)
-How will bank loans and lines of credit affect funding your invoices
-What customer service the company will provide and how they will treat your customers
You also want to consider whether or not the company requires a long term contract. If you can avoid a long term contract, then I would definitely recommend it. This way, if you change your mind for any reason, or you simply want to stop doing business with the company, you have the option.
Again, as you review the information on these websites, write down any further questions you may have. Once you have completed your research, then contact each one of these companies and have them answer your questions.
This will give you a taste of what their customer service is like. You want to make sure that your customers are well served, and this will allow you to test the system.
Now it’s time to start weeding out the companies. Look at those factors that are most important to you. You want to choose the company that most suits your needs. There is no one size fits all solution here, so avoid any companies that may treat you that way.
When you have selected the company you want, then it’s time to contact them and have them set up your account. You have options here. If the company has its website set up correctly, you may visit the site and start there.
If not, then refer to your list of phone numbers and contact the company. Make sure that you know ahead of time what information the company will ask for, and then have this information at your fingertips. This way your account set up will go more smoothly and save you time.
Account processing should only take a few days. If you haven’t heard back from the company you are using, then contact them to find out why. If they decide not to handle your business, then move on to the next company on your list.
The purpose here is to even out your cash flow and have your cash coming in when you need it. Don’t waste time waiting on a company that’s not serving you.
Freight factoring will save you a lot of time and money in your business. It will also allow you to have your cash flowing in when you need it. This will reduce your stress and allow you to focus on what’s really important: serving your customers.
When you’re working in the deliveries sector, you’ll see that the orders keep on coming, but the cash flow might be delayed because of the clients. They have their own problems, and even if you do deliver what they want and where they want it, they might still pay later than necessary for your services.
It’s not something that it’s never been heard of, and many of the small truck delivery companies have faced this challenge already. To be successful in this business and to make sure that you have the right money to pay for all those things that your fleet of trucks needs every day, it’s essential to have a good amount of money to cover the costs. Until you can talk about profit, you will still need to pay for the gas for the trucks, the repairs, the vehicle insurances and so on.
For this, you will need money, and if your clients don’t pay for your services on time, you might realize that you can’t run your business anymore. This being said, there’s always the possibility to ask for freight factoring services – it’s easy, it’s on time and it will save your business from bankruptcy.
Let’s see how you can select a reliable freight factoring company.
When you think about this, you need to understand what it is. Freight factoring is actually an advance on making the deliveries for your clients. Instead of issuing the invoice for your clients, you send it to the freight factoring business, which will be the ones to pay you up. You’ll get the money from them, and they will get the money from your client. It’s easy, it’s fast and it allows you to be paid on time.
It’s the first step that you have to take, because it’s about finding a good freight factoring company that can help you out. Start looking and see what you find, and take at least 3 or 4 into consideration to contact them. It’s not necessary to get 10 freight factoring companies, but make sure you have some to
Look for Reviews
The reviews are great ways to let you know about their success – usually, the reviews are left by former clients who have worked with them, and it’s great to follow. When you do this, see when the reviews were made – the time will tell you when people have taken them into consideration. It’s better to choose someone who has an active website and where people are active, along with the business owners, instead of choosing a company that doesn’t care for their clients’ opinions.
Look for Conditions
Each company has its own different conditions, and it’s better to see which one is more favorable for you. They might have a web site section where these conditions are stated, but it’s also great to contact them, because it can be different from situation to situation. Many freight-factoring companies treat their clients depending on particular situation, and you might get something that is not stated on the
website – that’s just one of the reasons why you need to contact them directly.
There will be a difference in the prices that you’ll find for these services – they are usually working based on a commission, and this percent from the whole price will vary from company to company.
The trick of choosing a reliable freight factoring company is to cover all the aspects that you’re interested in and, in the same time, have a decent price for these services. It’s true that it will be a big asset for you to be paid on time, without having to wait for the clients to pay, but take into consideration everything when you do this. The last step is to contact them and see what you will get – once you know all the details, it’s best to choose something that is appropriate and continue running your business to success.