When to Call Upon Business Factoring Companies

By on May 1, 2019

Manufacturing in the United States today is enormous, and American factories are producing everything from clothing and textiles to furniture to hardware supplies to kids’ toys. But it is not enough to merely produce these goods; factories and shippers need carriers who will deliver their goods (often by truck) to and from factories, warehouses, and retailers every day. Carriers and shippers alike may contact freight broker companies to arrange profitable meetings between a carrier looking for work and a shipper who needs their items delivered somewhere. This works well enough, but carriers may be interested in another third party: business factoring services, such as Advance Business Capital and its like. This may include invoice factoring services for domestic deliveries, but also service for international factoring if the carrier delivered something internationally. A service for international factoring may be used by truck companies delivering goods to Canada or Mexico, or carriers who use ships or planes to deliver goods to any corner of the globe. Why might international factoring be so important? Most carriers rely heavily on them, after all.

Carrier Work Today

Why would a service for international factoring be used? The modern American transportation network is a robust one, and some 12 million trucks, freight cars, airplanes, and ships are used to deliver goods both domestically and internationally. Trucks deliver the bulk of these goods, since many smaller carrier companies can only afford trucks and these vehicles can go to many places that trains or ships cannot reach. Most carrier companies in the United States are small, and have modest but hard-working fleets of trucks to deliver goods for their clients. These trucks deliver goods not only domestically, but also facilitate ground trade with Canada to the north and Mexico to the south. In fact, the United States is Canada’s single biggest trading partner, and the nations exchange many goods on the expansive land border.

Carriers charge their clients with invoices, and the shippers will pay those invoices within a set time. But of course, sometimes shippers pay late, and even if the payment is on time, many smaller carriers can’t afford to wait very long for that money. This is true for international trade too, and in that case, a service for international factoring may be hired by the carrier to smooth out their cash flow.

Hiring a Service for International Factoring

Most carrier companies are small, and have a limited fleet of trucks. More urgently, these small carrier companies have only thin cash reserves, and they have their own expenses to cover while waiting for a client to pay an invoice. Small carriers won’t have the deep cash reserves needed to survive until that payment is needed, so to avoid bankruptcy, invoice factoring services are hired to help out. These are business-to-business (B2B) money lending services who will work with carriers whose business credit is adequate.

After a carrier company has finished a delivery for a shipper, it will charge an invoice to that shipper customer. Even if paid on time, the invoice money may not arrive for 60-90 days, so the carrier will turn to factoring companies to smooth out their cash flow in the meantime. Once the carrier finds and hires a factoring company to help, that factoring company will purchase the rights to collect 100% of the outstanding invoice’s value once it’s paid by the customer. At this phase,the factoring service will provide the carrier with a large up-front loan that may be 70-80% of the invoice’s value. This timely payment allows the carrier to cover its own expenses while waiting for the invoice payment to be made. The carrier may have to cover crew salary, paying off trucks, an advertising campaign, or truck maintenance or refueling.

Later, when the invoice is paid by the shipper, the factoring company will collect it all, as previously agreed. Now, the factoring company gives their carrier client another, smaller percentage of the invoice’s value, and the loans may add up to 95-98% of the invoice’s value or so. The remaining money goes to the factoring company as a fee for their service, and is the source of its income. Most often, carriers will gladly trade 2-5% of the invoice’s value in exchange for a smooth cash flow.

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