Factoring accounts receivable is a specialized cash flow solution for businesses with variable overhead. While this isn’t a run-of-the-mill business solution, it works very well for trucking and transport companies who need fluid assets fast.
It is not a traditional loan because business owners leverage their accounts receivable in one of two ways:
- They receive one lump sum upfront.
- They receive a large sum and then receive smaller sums at intervals over an extended period of time usually a few months later.
The payment structure you select is based on your cash flow needs. This unique option is becoming more popular within the freight and trucking & transportation industry, especially in the current economic climate. The difficulty is how do you know you’re getting a good deal? It is questions like this that lead to businesses investing in factoring brokerage services.
Learning the Ropes
It can take a little while for businesses to adjust to factoring accounts receivable. The good news is a factor can help you learn the ropes.
A factoring broker’s job consists of three things:
- Preparation
- Comparison shopping
- Negotiations and leg work
This skill set helps you if you’re a factoring novice. Nothing works nearly as well as learning from an expert.
The beginning stages of factoring accounts receivable requires collecting the appropriate paperwork. This includes, but is not limited to:
- Accounts receivable reports
- Customer information
- General business information
Third party lenders are interested in a snapshot of your company; brokers can make sure that all of the information is properly collected. They can also council you through the entire process. Knowing what not to show is more than half the battle.
Crossing the T’s & Dotting the I’s
Once your presentation package is ready to go, it’s time to find the right factoring agency. Luckily, if you have a broker, you have an insider in the industry. They can help you comparison shop and even give you recommendations based on their connections.
Even after you’ve made your choice, a broker’s job isn’t done yet. They can negotiate and structure a deal that’s in your best interest. Factoring accounts receivable isn’t a matter to be taken lightly. It requires a certain balance of practicality and finesse.
After watching a broker at work, you can decide if you’re ready to take over the driver’s seat. Some businesses choose to go it alone in their factoring future; others decide to keep a broker on retainer. Just like third party lending, there’s not a one-size-fits-all solution. It really depends on the needs of your business, the lending climate and the businesses current financial health.
That’s why Advance Funds Network (AFN) wanted to talk about understanding the basics of factoring and brokerage before you tackle the particulars of your business. It’s much easier to adjust what you’re familiar with to a new construct then taking the construct at face value.
For more information on factoring accounts receivable, contact AFN today. We might even be able to locate and fund the use of a reputable brokerage service. We’re committed to giving our customers the best services possible, even if it involves inter-agency collaboration. We work with an extensive network of factoring and loan professionals throughout the USA. We keep our brokers close by allowing them full control over the entire process and never step in between a broker and their client base.
