This is a guest blog post by Rachel Donaghy, Senior Director of Account Management at eCapital.com. eCapital is building a brighter future for the transportation industry – a future where freight companies get paid at the click of a button, document exchange becomes data exchange, complexity disappears into the background and drivers have the freedom to focus on delivering the next load.
Establishing a new trucking business? Contrary to popular belief, you don’t have to start out in debt! When growing your business, there are several approaches you can take that don’t involve taking out a loan or putting essential business expenses on a high-interest credit card.
Some new business owners continue working full-time to maintain a steady income while working on their new venture part-time. Others start off small by working out of their home while they raise the capital to expand their business. However, another route will allow you to focus 100% of your time on growing your trucking business without working two jobs or starting off in debt. What is it? Glad you asked.
You can actually avoid business loans altogether by funding your growth through factoring. Factoring isn’t the same thing as a loan. You’re simply getting paid quicker (sometimes in as little as 24 hours) for the work you’ve already completed, minus a small fee – and you won’t owe lenders money after the job is done. Invoice factoring is the best and fastest way to grow your business without going into debt.
Many new companies simultaneously experience high demand for their services along with the need for additional financing—especially in the transportation industry. Demand can be good and yet, with high start-up and operational costs, creative solutions to fund growth may be needed.
Access to adequate financing for the purchase or leasing of expensive trucks and trailers is essential. So, how do you fund progress intelligently? Let’s look at the smartest way to grow your business and attract customers without starting off in the hole: factoring.
Invoice factoring turns your unpaid invoices into cash by selling invoices to a factoring company. The factoring company then pays the majority of the amount due to you (generally around 95%), minus a small fee and cash reserve. You are then free to focus on operations and other responsibilities because the factoring company assumes all of your accounts receivable duties.
Factoring doesn’t impact your credit rating or take long to get approved, unlike traditional financing options such as credit cards or bank loans. If you don’t have time to wait months for a bank loan, a factoring company can get you funds right away. You can get set up with a factor and get funded within a matter of days, not weeks or months.
Factoring can be a good option for improving your business’s cash flow. Here are some more benefits to working with a factoring service:
Fast cash is one of the biggest selling points of factoring. Invoices are paid within 24 hours by the factor. Traditional methods can take up to 90 days. If you’re waiting for payment on an invoice for an extended period of time, you could lose out on work and possibly damage relationships with clients, vendors, and employees by not being able to pay them on time.
Having cash in hand quicker means you can make the necessary purchases to continue conducting business or pay staff. Many trucking companies factor invoices so they can buy fuel or complete necessary repairs to get back on the road right away. In this industry, where work is sporadic, factoring is necessary to keep the business going and growing.
Both a short-term and long-term solution.
Factoring can be a great way to fund your trucking operation during the off-season when business is slow, when you’ve hit a rough patch, or even when your business is growing rapidly. Factoring works as a solid long-term solution you can use year-round to ensure steady cash flow.
Simple sign-up process.
In many cases, a traditional business loan is still the best way to get an injection of capital, but it takes time and requires a lot of paperwork. Factoring is fairly straightforward, and many companies will put cash in your hand within a couple of days of applying.
Great for new businesses.
Without an established credit history, new trucking businesses may struggle to find a traditional lender that will offer them a line of credit. Furthermore, your business may not have a strong enough profit margin to attract a lender. Many factoring companies, on the other hand, work with startups and small businesses so they can grow.
Your rate goes down as the number of invoices goes up.
Factoring scales with your business, which means you get access to more funds as you gain more customers or clients. So, the more you factor, the more money you get to quickly put back into your business.
Factoring is the smartest way to grow your business without going into debt. The majority of new businesses fail because of cash flow problems and insurmountable debt. When you factor your invoices, you’ll take control of your money instead of allowing money to control you, giving your business room to grow so you can keep your trucks on the road.