Maintaining a good cash flow is critical to building a healthy and successful business. It’s the lifeblood of your business and one of the leading contributors to failure in nearly all independently-owned companies. Whether you are starting a new business or have been in operation for a while, it’s important to monitor your cash flow position regularly and adopt smarter cash flow management.
If you’ve been thinking of ways to increase your cash flow, freight bill factoring may be the sustainable solution you’ve been looking for. But do you understand what is factoring financing, and how it works particularly in the trucking industry? What are its benefits in ensuring business continuity?
Freight companies are especially susceptible to cash flow problems. The nature of operation demands cash availability almost instant. From fueling the trucks, repairing vehicles, and clearing taxes, trucking businesses are highly exposed to the effects of low cash reserves.
What is freight bill factoring?
This is an advanced business capital on the unpaid freight just delivered but yet to collect payment from the customer. Freight company sells off its customer’s invoices to an invoice funding company and receive a single payment for the value.
Once the transfer of customers’ invoices is done, the factor assumes the responsibilities of following up on the unpaid invoices and collecting payment from the customer. These relieve the business owner of the need to make calls and constantly following up with customers for payments. How are these receivables going to impact your business float and growth?
Benefits of Using Freight Bill Factoring to Boost Your Business Cash Flow
Transportation factoring companies offer much-needed convenience to freight companies in terms of making cash flow readily available. There are many benefits to this service, but one key advantage is the ability to access funding within a short time possible. No need for a loan application whenever you suffer cash flow problems, whereas you can just factor a lump sum of money of invoices and have enough cash to keep your business running.
Here, you get to choose the number of invoices to be factored in each month, so you virtually have access to a flexible cash flow limit. That is more effective than having to apply for a loan that puts restrictions on how when and how much you can get, interrupting important functions of growing your business. Bank loans also often attract high-interest rates than freight bill factoring, so you enjoy low rates minus the hefty compounding interest rates
Common Cash Flow Problems Businesses Needs to Avoid
Running a business on less cash flow reserve is a recipe for failure. Starting a business without clearly defining your cash reserves can make the struggle to operate. Underestimating startup costs is one of the mistakes people make when starting or running an ongoing business.
It is recommended to develop a realistic budget that is flexible enough for overage to avoid challenges with cash reserves. Setting unrealistic estimates and poor cash flow is only going to usher problems in your business.
Another common cash flow pitfall businesses often get into is a high expectation for profit. For business owners, making profits and lots of it is usually the target. However, starting a business doesn’t necessarily mean you’ll make a profit or have customers flocking to your business. But that may also be different for your business depending on how you set it up from the beginning when estimating startup costs.
It takes time to build a profitable business, therefore, if you can wait and prepare until such time when your business is making a profit, then you can easily avoid cash flow issues early on in your business. Have a realistic profitability time frame and enough cash reserves to sustain your business.
Lastly, the lack of a cash flow budget is also a major factor that causes most trucking businesses to fail. What you expect to have versus what you need to spend at a particular time should be on the cash flow forecast. This helps to handle issues when still small.
