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Anyone running a transport business has realized the pain of arranging for ready cash to take care of routine expenses such as fuel, drivers wages, etc. On the one hand the transporter would have to extend credit terms ranging from 30 to 90 days to clients while on the other having to pay for all expenses in cash. This puts a lot of pressure on cash flow and could soon lead to a financial drought if the transporter is too over-stretched.While the transporters balance sheet might show a very healthy balance due to the ledger balances showing accounts receivables, there is an inevitable delay in receiving payment from clients. The ground reality is that figures on paper are useless when ready cash needed to pay wages to drivers and other employees. Accounts receivable financing companies take care of this problem with various schemes by which a transporter can sell his outstanding invoices to these factoring companies, who will pay him almost the entire amount of those pending invoices after deducting their factoring fee and they might also keep a small percentage of that money pending until his clients have cleared the invoices on the due date. This money can be electronically transferred into the transporters bank account within 1 to 2 days. This move ensures that the transporter gets cash almost instantly against his credit invoices and this money can now be used to pay off immediate expenses. The factoring fees could be from 1% to 5% and these fees would depend on the credit reputation of the transporters clients, the total amount of business given to the factoring company and the number of credit days extended to his clients. If profit margins can accommodate the factoring fees, then the transport company can definitely go in for such an arrangement. However, clients will have to be informed about the inclusion of the factoring company into the equation. Some of them might resent being asked for payments from a third party so it is essential that details are explained fears put to rest. The transporters factoring company could also take over the actual collection of payments from his clients and this could prove to be a big boon for his business since he will now be able to divert all his energy towards increasing his business instead of running after payments. With banks tightening the rules before handing out loans, accounts receivable financing is a great way for transporters to get a grip on their finances and they could watch their factoring companies business grow along with theirs as they get more credit clients into their fold.With competition fierce in the transportation industry, accounts receivable financing is a suitable method for a transporter to get ready finance without much hassle and could turn into an extension of his transport business and the factoring company would also grow alongside. With a wide range of specialized tailor-made services offered, receivable financing is a better option and is thus an ideal financial tool for the transport industry.
Article Source: http://modirac.com
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