Last Updated on November 16, 2022
As a transportation operator, juggling back-office operations and transport management can be tough. Worse still, customers often take weeks or even months to pay, creating cash crunches that lead to a frustrating cycle of negative cash flow and increasing debt.
To keep growing your transportation business and stay competitive in the industry, you need cash to pay debt, maintain vehicles, and meet payroll obligations – this is where transport factoring comes in.
In this article, we discuss how transportation factoring works, its benefits, and how it compares to other financing options. Read on to learn how altLINE can improve cash flow and grow your business through invoice factoring!
What Is Transportation Factoring?
Transportation factoring is when your business sells an invoice to a factoring company like altLINE in exchange for a cash advance. Factoring is especially useful when customers pay with invoices because there may be delays in payment that lead to negative cash flow. Transport factoring is generally used to access working capital when necessary, so your business does not rely on customer payment timelines.
Benefits Of Invoice Factoring For Transportation Companies
Transportation business factoring provides cash advances to unlock funds by substituting delayed customer payments. Check out how invoice factoring for the transportation industry can help you get more cash when necessary:
Get Your Accounts Receivable Invoices Paid In Days, Not Months
The best transportation and logistics factoring companies fund invoices within 1 or 2 days. This means you can receive up to 95% of your hard-earned money almost immediately instead of in 30, 60, or even 90 days.
Access Capital To Grow Your Business While Maintaining Equity
Business owners often must sacrifice equity or assets to fund growth initiatives, but invoice factoring can set them up for long-term success. Transportation factoring gives you cash advances to develop your company, pay debts, and meet payroll obligations without sacrificing assets or equity.
Get Cash When You Need It Most
Delayed invoices and overdue payments create uncertainty and negative cash flow that may hurt your business. Transportation financing cash advances offset late customer payments and increase cash flow to keep your business financially healthy.
How Does Transportation Factoring Work?
altLINE’s transportation factoring services turn unpaid invoices into cash advances to pay expenses and fund business initiatives. Instead of waiting on customer invoices to clear, you can use invoice factoring services to get cash whenever necessary. Here is a guide to applying for altLINE’s transportation factoring services:
Submit Your Unpaid Invoices
altLINE accepts all unpaid customer invoices for factoring, though we prefer invoices for creditworthy customers and medium or large businesses. Additionally, we do not factor invoices for customers who consistently make late payments.
If your invoice turnover time is between 30 and 90 days, your receivables are well-positioned for factoring.
altLINE Advances Up To 95% Of The Invoice Face Value
You can generally expect a factoring advance rate of up to 95% of the invoice’s face value and to receive the cash advance between 24 and 48 hours after submission to altLINE. The exact timing of your cash advance deposit usually depends on your customer’s receipt and acknowledgment of goods.
altLINE Helps Collect Payment For Your Outstanding Invoices
altLINE assists in gathering payments by providing a secure lockbox to contain customer funds and reporting collection progress through an online portal. If issues arise, we also make calls to resolve disputes professionally, so you can maintain good business relationships.
altLINE Pays Out The Remaining Unpaid Invoice
After invoice collections, we deduct a factoring fee (typically 1-5% of your invoice) and transfer the remaining invoice balance to your company.
Uses For Your Factoring Cash Advance
Receiving cash advances from altLINE’s transportation and logistics factoring services means you do not have to wait on customer payments to fund your business. Instead, you can eliminate long payment cycles and gain growth capital sooner to develop your company.
Here are some ways to use your factoring cash advance:
Paying employees on time is crucial to running a good transportation company. Late payroll caused by delayed invoices often lead to employee dissatisfaction and reduced productivity.
Invoice factoring cash advances ensure prompt salary payments, reducing dissatisfaction and improving productivity.
Take On New Orders
You should not be forced to wait for customer payments to clear to take new orders and grow your business. Invoice factoring cash advances help you buy important equipment and supplies to accept transportation orders without selling assets or equity.
Pay Operating Expenses
It is tough to pay for fuel, maintenance, and other operating costs with a negative cash flow. Fortunately, transportation factoring helps you pay those expenses without sacrificing equity or assets.
Transportation Businesses We Fund And Finance
altLINE is a factoring company for transportation businesses servicing various customers in the sector. Here are some of the services we offer:
- Medical transportation factoring
- Cold chain transportation factoring
- Trucking factoring
- Livestock transport factoring
- Air transport factoring
- Factoring for 3PL (third-party logistics) and transportation
Transportation Invoice Factoring vs Other Funding Options
There are three funding methods for the transportation industry in addition to invoice factoring. What are they, and are they better than transportation invoice factoring? We compare them here:
Transport Factoring vs Bank Line Of Credit
A bank line of credit is typically the first financing solution chosen by businesses. While many transport companies can qualify for a line of credit, you may not get enough funds to develop your business.
Banks typically approve your credit application and set your lending limit by looking at your company’s fixed asset portfolio. Transport companies with many fixed assets generally get a higher lending limit, but this may not be the case if you are still new. If you do not have many fixed assets, you may have a harder time qualifying for a line of credit.
Invoice factoring is typically better for new transport operators because financing companies provide funds based on your customers instead of your fixed assets. If you work with an established and creditworthy customer base, factoring companies will give you the funds that banks cannot.
Transport Factoring vs ACH/MCA Loans
ACH (automated clearing house and MCA (merchant cash advance) loans offer easy qualification and fast funding for all kinds of businesses.
Unfortunately, ACH and MCA loans often have high interest and lender fees, reaching up to 60% of your original loan amount. Mismanaging these loans as a small business can land you in serious financial trouble.
Transportation factoring is typically safer because you are collateralizing invoices, which customers will eventually repay. Because repayment is almost guaranteed, you can concentrate on building your business instead of stressing over debts.
Transport Factoring vs Quick Pay Discounts
Offering discounted rates for prompt invoice repayment can encourage customers to pay their debts on time, accelerating your cash flow when needed. However, this method’s success heavily depends on what your customers prioritize.
If they prefer having more cash on hand over your cost savings, they can ignore your offers and decide to pay when their invoice is due, leaving you short on cash and unable to grow your business.
Transport and logistics factoring is usually more reliable because you will receive a cash advance as long as your invoice is approved.
Typical Factoring Rates And Fees
We determine invoice factoring fees based on how much you plan to factor and how long customers take to pay. Factoring more amounts and getting customers to pay faster mean you will get lower rates. We may also consider the age of your business, customer base diversity, and overall customer credit quality.
When factoring an invoice, we charge two types of fees:
- Initial fee: This fee covers your invoice’s processing expense for a set initial period of time (typically the first 30 days) and costs up to 3.50% of your invoice’s face value.
- Incremental fees: These fees kick in after the initial fee period to cover subsequent factoring expenses and cost up to 1.50% of your invoice’s face value.
Requirements To Apply For Transportation Factoring
You need to submit an application before factoring cash advances. Here are the documents you need:
List Of Existing And Potential Customers
We require the contact information of all your current and potential customers as part of your application process. altLINE reviews your customers’ credit quality to determine their factoring eligibility.
You must submit a form as part of your factoring process. Enclose these documents with your application:
- Business ownership identification
- Personal identification
- Employer Identification Number
- Customer contracts
- Articles of incorporation and other relevant corporate documents
Accounts Receivable Aging Report
Accounts receivable aging reports record all your invoices based on when they are due. altLINE uses this report to research your customers’ payment behaviors and determine their factoring eligibility.
We will consider invoices that are 30 to 90 days outstanding, but invoices where customers state an inability to pay may be ineligible for factoring.
Frequently Asked Questions About Our Factoring Services
Here are some common questions about factoring for transportation companies answered:
Do you need to run a credit check before getting started?
altLINE runs a credit and background check on all transportation company owners. However, there are no minimum credit thresholds for approval. Background checks are reviewed for financial-related crimes or felonies. In the event a borrower has a spotty background, approval with altLINE may be in question, but in the event the borrower is disqualified, altLINE will often connect the borrower with a transportation factor that is willing to help.
Do you require UCC filings when factoring transportation invoices?
Upon executing a term sheet, altLINE will file a UCC on the client’s business. This UCC filing allows altLINE to properly secure the collateral (i.e. the invoices) it plans to advance against when the factoring facility is in place. UCC filings are an integral part of any form of lending.
Is transportation factoring debt or a loan?
Transportation factoring is neither debt nor a loan. Invoice factoring is the sale of your invoices to a third party. The money advanced against these invoices will be repaid by your customers.
However, altLINE is a recourse factor, so you may need to pay the cash advance back if your customer fails to pay their invoice.
Do you offer non-recourse transportation factoring?
altLINE only offers recourse transportation factoring. While you must repay the cash advance if your customer fails to pay, recourse factoring structures often allow for factors to extend lower rates and larger credit limits on your customers.
Jim is the General Manager of altLINE by The Southern Bank. altLINE partners with lenders nationwide to provide invoice factoring and accounts receivable financing to their small and medium-sized business customers. altLINE is a direct bank lender and a division of The Southern Bank Company, a community bank originally founded in 1936.