Almost all the industries in the world do not consider factoring their accounts receivable. That is because factoring is not suitable for many type of industries. However, there is one business that never fails that have been using it along with their manner towards to achievement. This certain sector is the trucking industry. In reality, they’ve used them for decades and they hadn’t obtained any severe negative effects from it.
What is factoring
First off, let’s talk about what factoring is. In bookkeeping, factoring is every time a factor, buys business account receivables and provides them with an advanced payment based on how far the business account’s unpaid invoices. The third party company then begins to accumulate the owed receivables. This type of method allows companies to keep their cash flow.
Below are a few of the advantages of factoring.
• Time efficient — it is a great time saver because the payments are done in advance. The stored time will then be used to more important things such as marketing and sales.
• Good for business improvements — since there’s an improvement in payment, you may use the instantaneous cash for developments and growths of the company. Hiring new employees that may generate a much larger income to the business. Or perhaps purchasing advertisements to help enhance the firms’ sales and promotion.
• No security — this method does not require you to get collateral if anything goes wrong.
• More funds — factoring usually allows a company to receive almost 80 percent of the total receivables. This much fund transfer does not ordinarily happen when applying for loans in banks.
Why use factoring services
In addition, the principal reason trucking companies in usa often choose factoring over other methods of money maintenance is that it prevents any upcoming collection problems and does not signify any bad debt.
The first payment of factoring services provides enough cash flow within the enterprise to justify their entire expenses such as the financial services.