Truck Factoring Costs

Trucking Business  Finance:  Tips on how to Do It  By yourself

 

 In contrast to what most small truck business owners  believe,  funding a business is not rocket science.  As a matter of fact, there are only three main ways  to perform it: via debt, equity or what I call “do it yourself”  funding. See Truck Factoring Costs

 

Each method comes with benefits and drawbacks you should  know of. At various stages in your business’s life cycle, one or more of these methods may be appropriate. Therefore, a  comprehensive  knowledge of each  approach  is very important if you think you may ever  want to  obtain financing for your business.

 

Debt and Equity: Pros and Cons

 

Debt and equity are what  lot of people  imagine when you ask them about business financing. Traditional debt financing is  often provided by banks, which loan money that must be repaid with interest within a certain time frame. These loans  generally must be secured by collateral in case they can not be repaid.

 

The cost of debt is  reasonably low, especially in today’s low-interest-rate  setting. However, business loans have become  more difficult to come by in the current tight credit environment.

 

Equity financing is  offered by investors who receive shares of ownership in the company, rather than interest, in exchange for their money. These are typically venture capitalists, private equity firms and angel investors.  Though equity financing does not  need to be repaid like a bank loan does, the cost  ultimately  can possibly be much  more than debt.

 

This is because each share of ownership you divest to an investor is an ownership share out of your pocket that has an unknown future value. Equity investors often place terms and conditions on financing that can handcuff owners, and they expect a very high rate of return on the companies they invest in.

 

DIY Financing

 

My  absolute favorite kind of financing is the do-it-yourself, or DIY, variety. And one of the best ways to DIY is  by utilizing a financing technique called  invoice discounting. With factoring  products, companies sell their outstanding receivables to a commercial finance company (sometimes referred to as a ” invoice factoring company”) at a discount. There are two key  advantages of factoring:.

 

 Significantly  bolstered cash flow  Rather than waiting to  get payment, the business gets  the majority of the accounts receivable when the invoice is generated. This reduction in the receivables lag can mean the difference between success and failure for companies operating on long cash flow cycles.

 

 Say goodbye credit analysis, risk or collections The finance company  conducts credit checks on customers and  scrutinizes credit reports to uncover bad risks and set appropriate credit limits essentially becoming the businesss full-time credit manager. It also  conducts all the services of a full-fledged accounts receivable (A/R) department, including folding, stuffing, mailing and documenting invoices and payments in an accounting system.

 

 is not as well-known as debt and equity, but it’s often more  useful as a business financing  instrument. One  explanation many trucking owners don’t consider  trucking factoring first is because it takes some time and  energy to make  invoice factoring work. Most people today are  seeking out instant answers and immediate results, but quick fixes are not always  accessible or advisable.

 

 Getting it to Work.

 

For  trucking factoring to work, the business must accomplish one  extremely important thing:  supply a quality product or service to a creditworthy customer.  Undoubtedly, this is something the business was created to do  initially, but it serves as a built-in incentive so the business owner does not forget what he or she should be doing anyway.

 

Once the customer is satisfied, the business will be paid  promptly by the  factoring company it doesn’t have to wait 30, 60 or 90 days or longer to  get payment. The business can then promptly pay its suppliers and reinvest the profits back into the company. It can  utilize these profits to pay any past-due items, obtain discounts from suppliers or increase sales. These benefits will  generally more than offset the fees paid to the  factoring company.

 

By using a truck factoring company, a trucking business can  increase its sales,  establish strong supplier relationships and strengthen its financial statements. And by relying on the  factoring company’s A/R management  products, the business owner can focus on  increasing sales and  boosting profitability.  All this can  happen without increasing debt or diluting equity.

 

The  typical truck business uses trucking factoring companies for about 18 months, which is  the amount of time it usually  requires to achieve growth objectives, pay off past-due amounts and strengthen the balance sheet. Then the business will likely be in a better position to  look for debt and equity opportunities if it still needs to. Also see Truck Factoring Costs

 

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