Trucking is a unique industry because your product is moving the products of others. You move the country, ensuring that everything from food to clothing to furniture to mail reaches its destination on time. Because you fill such a unique and vital position within the economy, your business structure and revenue stream is sharply different from other companies. Freight bill financing is a unique concept, designed for trucking companies and used by many of the biggest transportation companies in the nation.

What Is Freight Bill Financing?

Although similar to accounts receivable financing or factoring, freight bill factoring is custom tailored for transportation. Once your freight bill is ready, you are eligible for financing based off of it. A non-traditional lender and transportation specialist like Crestmark will purchase the bill from you, paying you a portion of it immediately. Once the account clears with your client, you get the rest minus an administrative fee. Freight bill factoring can be traditional or discount depending on your needs.

Why It Works

You know how volatile the transportation industry can be. There's often a lag time between invoice and receipt of payment. In addition, shifting conditions like gas prices and unavoidable delays from weather can lead to a dramatically variable revenue stream. Financing can help smooth out the operation, ensuring that you have the cash you need when you need it. 

Having access to a business line of credit provides a lot of freedom for your company. You have the leeway to make decisions without worrying about securing new funding for them, allowing you to move faster than your competitors. You also have a number of opportunities to make changes within your company, temporarily absorbing costs during the shakeup. Here are three ways that you can make good use of the opportunities a business line of credit provides.

Purchase Inventory At A Discount

When an opportunity arises to save your business money in the long term, you can use your credit to make it work in the short term. This can include everything from taking advantage of a short-term promotion to negotiating a longer term deal that allows you substantial savings for purchasing in volume.

Fund Payroll

As your business changes and adapts throughout the year it is not uncommon to find yourself coming up short for payroll. Your line of credit can help you ensure that everyone in your office gets paid while you wait for things to settle down.

Consolidate And Expand

Reorganization can be a costly process in time, money, and productivity. But in the long term, it almost always yields better rewards. Supplement it with funds from your line of credit and you'll be able to weather the short term chaos in favor of longer term benefits. The same is true with expansion. You might find yourself financially strapped in the short term as your merger takes effect. A credit line will help you meet your expenses while things level out. 

There are a number of reasons why a company may not want to take a term loan. They may want to pledge personal collateral, find it difficult to obtain this more traditional form of financing, they may simply not want to accept the terms that are available, or they may simply prefer these non-traditional financing options as a way to meet their financing needs. Whatever your situation, if you're looking outside the term loan box, you should look at these potential solutions.

Accounts Receivable Financing

A/R financing is a flexible line of credit solution available to most businesses. This type of financing leverages the money you are due to receive from invoices you have sent to your customers. A/R financing helps bridge the gap between your cost of sales  and when you get paid for your goods or services.

Asset Based Lending

This line of credit is secured by an asset that your business currently holds. Asset based lending is a line of credit, meaning that you can use as much or as little of your potential credit as you select up to the value of the collateral pledged. You can change it monthly, weekly, or even daily depending on your needs.

Factoring

In this type of financing, a third party factor actually purchases your unpaid invoices. You receive a portion of the value upfront, with the rest of it being delivered, less an administrative fee, when your client makes good on the debt. Factoring may be traditional, where the factor fully purchases the invoice and assumes both the credit risk and responsibility for collection of the receivable. Or  on a recourse basis where the receivable is sold back to the seller after a certain period of time elapses. Unlike other types of financing there are less restrictive covenants inherent in factoring transactions.

Accounts receivable financing is one option for businesses whose working capital needs exceed what can be obtained through traditional term loans from conventional banks. Whether your enterprise is new, your funding demands unusual, or you're simply having trouble getting credit in a tight economy, accounts receivable financing can be a good choice. But what kind best suits your business? There are two main options: traditional A/R financing or discount financing.

Traditional, Non-Recourse Accounts Receivable Financing

Traditional A/R financing begins with your potential financier checking your customer's credit. This should happen before you invoice to determine approval. Once your client is approved, the financier (known in this case as the factor) will purchase the invoice from you. In this case, the factor actually assumes complete responsibility for the invoice because they now own it. That includes ensuring payment even if your customer is unable to pay.

Discount, Recourse Factoring

Discount factoring is similar to traditional accounts receivable financing. It too involves borrowing against unpaid invoices, but in this situation the factor does not actually purchase the accounts or assume liability for them. Advantages of this system include lower fees and in some cases faster turnaround and greater availability of funds.

Both of these options allow for flexibility and funding that might not otherwise be available. Both also involve your factor working directly with your client, a proven system that shortens the time between invoice and receipt of payment.

To learn more about accounts receivable financing, contact one of Crestmark's experts. We can help you understand the details and differences between discount/recourse and traditional/non-recourse factoring and select the right option for your business.