Why New Trucking Companies Need to Think About Factoring

Whether you are a longtime driver who has decided to make the move to getting your own operating authority, or someone who sees an opportunity in trucking and is starting business as a carrier, you can be certain of one thing. Something will catch you by surprise, no matter how meticulous you were in your business plan.

Ask any successful business person about their early days and they will likely admit that starting up cost more and took longer than anticipated. Why? Because there are just some things you cannot control. Gearing up a trucking business may have fewer stumbling blocks than many other types of companies, but that doesn’t make it immune from beginner’s hiccups.

Your new truck could be a lemon. A reliable employee may leave for another opportunity or for family reasons. Your primary customer may hit a rough patch and business that you counted on may slow down or fall away. These are normal snags that an established business can deal with, but that loom large for a company still finding its footing.

One step to take to lessen the just-starting-out tough spots is to stabilize your cash flow with freight factoring. More than 80% of new trucking companies partner with a factor that buys its accounts receivable. The trucking company gets cash immediately, rather than waiting for up to 90 days for payment from the customer, and the factor deals with collection.

Look at Factoring Before You Need It

Lots of trucking company owners start investigating factoring companies when they are in the midst of handling a cash crunch. That’s not the best timing. You’ll feel pressured to sign on with someone quickly and may rely on recommendations that are not current, or be more susceptible to a good salesperson’s spiel.

To make the right decision about factoring for your company requires time. Ideally, you’ll start thinking about factoring when you make your business plan. That doesn’t mean that you’ll necessarily sign on with a factoring company on your first day of business (though it might). What it does mean is that you will start on your due diligence.

Read about factoring from independent trucking sources to understand the arrangement. An initial Google search on factoring for trucking companies will turn up a lot of articles and blog posts connected to a specific factoring company. Those stories will likely be a good starting point, but look deeper. Trucking publications like Fleet Owner and American Trucker often run articles about starting or growing a trucking company and factoring usually gets some attention.

Talk to others in the business and find a few factoring companies that get uniformly good reviews. Then visit their websites, and if they sound like a company you want to do business with, contact them for more information.

Think about your other options to help your fleet navigate a cash crunch and decide when factoring makes sense for your company. Think about what is important to you in a factor — customer service, quick set-up, cost, trucking expertise — and ask questions specific to your concerns.

You should come away from your conversation with a clear view of how the business relationship will work from start to finish. Factoring is usually a temporary solution for an immediate cash crunch, so you want to know exactly how to end the arrangement when it is no longer necessary.

Gain Peace of Mind

Choosing to work with a factor is a big decision, and identifying the right financial partner for your trucking company is key to your business.

If you look into factoring with as much deliberation as you look into your operating costs, your estimated revenue, your staffing or vendor needs, then you will be in position to know when to turn to a factoring company for help and which one best fits the needs of your fleet.