One way a small business, including trucking companies, can secure financing relatively quickly is through invoice factoring. If there is certainty that money will be coming in because of outstanding invoices, a truck company owner is able to guarantee repayment. Invoices give a business leverage and inspire confidence among potential lenders. The business owner might have truck orders that have been delivered but still need to be paid, and is able to show these invoices and borrow against them.
The advantage of invoice factoring as a form of financing is that it can be secured quickly and there is visibility concerning repayment that is reassuring both to the borrower and to the lender. Outstanding invoices for 30, 60 or 90 days can be used when securing the loan. In addition to proving future income based on the invoices, a business can qualify for a loan if it has limited debt and clean credit. This is essential so the lender can feel sure that much of the money coming in will be going to pay off this loan rather than previous loans.
When considering this type of financing, it is important to pay attention to the requirements of a potential lender. Some require a minimum amount of invoice dollars due before extending a loan. If a payment isn’t made, it is possible that clients may be contacted for repayment, but this depends on the type of loan and lender.
The higher amount of money you have due according to invoices you can show, usually, barring debt and other issues, the more likely it is you can take advantage of invoice factoring to provide capital for your truck business. Another positive is if you have a number of steady clients who have a proven track record of repayment. If you feel confident that clients are reliable and will pay back in time, this method of financing may be right for your business.
One reason many businesses prefer to use invoice factoring is that it is a fast method of borrowing. If all of the paperwork is in order, a borrower can receive an answer in less than a business week. This method may cost more than a bank loan or a credit line, but short-term financing in general tends to be expensive, and borrowing against invoices is less expensive and complicated than many other methods.
If your trucking company has a clean financial record and a certain number of clients with well-established businesses and a record of consistent repayment, this form of financing may be right for your company.