Though often overlooked, the trucking industry is essential to the health for the US economy. Think about it: without truck drivers delivering goods, interstate commerce would grind to a screeching, tire-burning halt.
Despite the importance of trucking companies, the way the system is structured often leaves them within a shaky financial position. Truck companies submit invoices for services rendered, and then often wait 30-90 days for payment on the accounts receivables.
For a bigger company with large cash reserves, waiting to be paid would not be a problem. But for small to mid-size companies operating on a strict budget, it might stop being an option. Expenses such as payroll and gas come in the time between payment, and not paying your drivers is never a good business practice. Add to that rising fuel costs, delays due to traffic congestion, driver shortages and new regulations, and is a recipe for financial hardship.
Therefore, trucking companies often have to turn to outside financing. The following are some methods trucking companies to consider:
Also known as factoring, this options refers to carpet by which businesses sell their accounts receivables to a factoring company. Approval for factoring draws on on the creditworthiness of the trucking company’s customers.
At the use of the sale, customer gets 80-90% of your cash back immediately from the statements. The remainder of the balance comes after customer repayment, less a percentage fee that typically ranges from 1-5%.
This choices are best for B2B companies that cannot afford to wait for payment, and the cost is 4-5% monthly with a healthy annual fee typically between 18-30%.
Though hard to come by, bank loans are most of the cheapest way of financing. Mortgage loan process involves an application and overview of the company’s creditworthiness and financial story. Small companies especially are more likely to be turned down for loans, although exceptions do exist.
After approval, fund disbursement usually takes about 30-90 days to achieve a trucking company’s banking. This form of funding is better for trucking outfits with a great credit report . and don’t want the money immediately.
Cash advances take place when a small-business receives an advance sum during a lender. Business pays the lending company back with percentages associated with their monthly card receipts up to the loan (plus a predetermined rate) is repaid. Tend to be two legal limits to the rates, and so they also cannot be changed retroactively. The advantage of cash advances is immediate cash- can be the fastest method for obtaining cash without going to a loan shark.
This financing method very best for trucking companies who need immediate cash for a much smaller amount of time and have limited financing options. Cost of is usually 20% and up.
A trucking company may wish to sell property, plant, and/or equipment, and simultaneously leases it back for resources.
It is best for trucking companies with valuable plant or equipment assets which usually underutilized, and the cost is monthly lease payments as well as the depreciation and tax burdens of tools.
Every trucking company is unique, however it is up to them to locate funding solutions that meet their individual needs. Being informed on all options is the first step toward finding a sufficient cash flow solution.
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