In these hard economic times, many truck companies turn to bank loans to raise capital for their business. However, most of them do not qualify for a loan due to various reasons like poor credit scores or lack of collateral, making working capital hard to get from a traditional source. As a result, many business tap into the power of freight factoring. But what is freight factoring, and how does it differ from a bank loan? This article will examine everything about them. So, keep reading to know the one that is best for your business.
Working capital represents the operating activities of a company and the inflow and outflow of cash to fund operations. It is a metric that shows the ability of a company to pay its obligation within the short term. It can be calculated by subtracting a company's current assets, like cash and accounts receivable, from its liabilities, like taxes or debts. If the result is less than the assets/liabilities, then it shows that you don't have enough working capital to manage your expenses.
A positive working capital indicates that a company can quickly pay off its short-term liability, while a negative working capital indicates that it can't do so.
Learning how to manage working capital is vital to the success of any business. This is because it determines the growth and flow of cash into any organization. So, practice the following techniques to improve your working capital.
Freight refers to the commercial transportation of goods like raw materials from one location to another. It also refers to the fees associated with the transportation of these goods.
One of the problems in the trucking industry is that it takes over 30 days to receive payments from shippers. This affects business owners because they need money to keep their business in motion. However, with freight factoring, you can quickly turn your unpaid invoices into cash. But how does it work?
After a shipment is delivered to a client, the driver/truck company has a bill of lading that details the type, and quality of the goods being shipped. Instead of waiting for a long time to get paid, they sell the bill of lading to a factoring company to get most of their money back. The factoring company will then follow up with the client and ensure they receive the payment in full. After receiving the payment, they will return your balance minus their service fee.
Bank loans are loans that are provided by the bank to an individual or business for various purposes. It can be to purchase some cars, goods, or other assets. However, when it comes to businesses, most companies apply for working capital loans.
A working capital loan refers to a loan that is used to help keep any business operation up and running—especially if it's having trouble covering its daily expenses due to inconsistent cash flow or business growth spurts. It is not used to buy long-term assets but to provide working capital to an organization.
Freight factoring and bank loans are two methods companies use to finance their business activities. But what differentiates them from each other? This section has the answers to this question.
There are many reasons why freight factoring is better for small companies than bank loans, and some of them are listed in this section.
Managing a business and dealing with finances can be a difficult task for any organization. However, you can ease that stress and get faster payments by applying for our JITpay services, which come with a lot of benefits. For example, you can use it as long as you want, and you don't need to include your assets as collateral in order to qualify for the services. You will get your money within 24 hours, and you don't have any obligation if your customer defaults on payment. So, contact us today if you're looking for a way to receive payments faster and optimize your finances.
