Does your trucking business require funds immediately to keep operating? Well, if that’s the case, you’re likely to consider going for a business loan. After all, you can’t depend on your receivables, especially when the time is of the utmost importance.
However, instead of going in for a bank loan, you should probably try opting for factoring.
Faster access to cash
Bank financing takes time. Typically, the waiting period can stretch up to 3 months. That’s a lot of waiting time to deal with, especially if your business is in urgent need of money. The lack of immediate funds can cause your operations to slow down or worse, even shut down temporarily.
However, with invoice factoring, you don’t have that problem. Invoice factoring simply involves selling your invoice to a “factor” or factoring company. The approval takes about 5 days (and often even less), after which, you can have your funds in the form of a cash advance in less than 48 hours.
The cash advance is usually 80% of your total invoice value. The best part is that this isn’t a loan; it’s your money that you’re collecting in advance. The factor then pays you the rest after collecting the entire amount from your customer and they deduct just about 1.5% of the invoice value as their fees.
Though the fees can vary based on several factors, you can be sure that it’ll be much lower than the interest you’ll have to pay on a business loan.
Now, that brings us to the next big advantage.
At first, you might be convinced that cash flow factoring fees are just as high as or higher than the interest paid on a bank loan. Well, you couldn’t be more wrong.
You can do the math yourself.
Now, let’s say you send out $100,000 worth of invoices per month to be factored at a fee of 2%. This means you pay $2000 every month as fees, which amounts to $24000 per year. But, you have revenue of $1.2 million as collections (100,000×12 = 1,200,000).
Once you subtract the $24,000 from the $1.2 million, you still have $1,176,000 left as earnings.
On the other hand, a bank loan of $100,000 with an APR of 12% will cost you $12000 as interest and you will still have to pay back the principal amount of $100,000. You’re actually paying $12000 more than the money you borrowed or at least it’s a greater strain on your cashflow each month. With debtor finance or invoice finance, you are not “borrowing money” but simply paying a fee (which would be tax deductible in most cases) for accessing your OWN MONEY that much sooner.
So start growing your business with Invoice Factoring.