Is it good to have a factoring company?

Accounts receivable is a lucrative business. However, in order to start a business of this kind, including factoring in the trucking industry, you first need to go through the difficult procedure of registering a factoring company. The main difficulty lies in the need to obtain a license for factoring. Because of this, the case can drag on for a long time.

Is it worth registering a factoring company?

Accounts receivable is not only an asset, but also a problem for a business. It is not uncommon to have to deal with problem customers, but the company does not have the opportunity to wait. It urgently needs money and has to settle for even less, just to get at least some funds.

The factoring company specializes in the repayment of receivables and for a smaller amount with its subsequent collection from the client. Income is calculated as the difference between how much the debtor owes and how much money this debt was redeemed for.

Registering a company with a factoring license is a great solution for your own business if you are well versed in the law and know how to collect debt from a client in different situations. Unlike a company that sells debt, you have time to collect funds from a client, and thanks to this, you can make good money.

Registering a factoring company in the trucking business is also beneficial because it requires virtually no investment. No need to buy goods, no need to spend money on a lot of licenses. You only get one factoring license and only need funds to redeem one debt. In the future, you just need to put the money into circulation and promote the company. The money will be returned fairly quickly.

Factoring in the trucking business

Factoring services are provided on the basis of documents confirming the delivery of goods or the fact of rendering services. For the trade sector, we are talking about consignment notes. For a company providing services – about the act of work performed.

Some logistics companies offer counterparties the opportunity to finance the debt for the services provided within 15-45 days. If the counterparty is satisfied with this, then the transport company itself wants to receive money immediately upon the provision of the service. 

The absence of a delay suits the logistics company, but does not suit the customers. What to do in this situation so that both parties are satisfied, we will consider below.

Cooperation with a factoring company in the trucking business

Conflicts of interest can be resolved with factoring. The process will include the following steps:

• The logistics company delivers the cargo to its destination;
• The customer signs the documents;
• The document is transferred to the factoring company.

Then everything goes according to a scenario that suits both parties: the logistics company receives the desired money, and the customer receives the deferred payment necessary for the business. Factoring in logistics is a new and unpopular service. However, the Customer and the Contractor in modern conditions strive to build long-term partnerships, where loyalty is one of the main factors. The factoring company will help to regulate the desire of the Customer and the possibilities of the Contractor (logistics company). The customer receives the necessary deferred payment only by changing the payment details, the Contractor (logistics company) receives the necessary working capital to increase business and solve current problems.

It is important that the factoring company familiarizes itself with the specifics of the activities of a particular logistics company. So, delivery can be carried out not only by road, but also by rail, river, air transport. Delivery time varies from a few days to several months. With long deliveries, the logistics company needs not only financing for the delay, but also financial assistance for the duration of the order.

Other Benefits of Factoring

Large companies operating in the field of trade and services have recently not been engaged in logistics on their own. The organization of delivery in this case is transferred to third-party companies that specialize specifically in logistics. The provider must be confident in all customers who will use delivery services. If the company of the customer of logistics services develops actively, over time it becomes more and more difficult to assess the risks of possible non-payment for the services provided.

To reduce risks, some transactions have to be abandoned, while losing some customers. In such situations, factoring companies also come to the rescue – they act as a guarantee that the money for the services rendered will come with a 100% probability. The Company receives a guarantee from the Factor, as well as payment for the supply of goods, regardless of the ability of the customer to meet its financial obligations.

Difficulties in implementing factoring

Some companies, introducing factoring services, are faced with the categorical unwillingness of the counterparty to work on such conditions. They insist on deferred payment, but refuse to cooperate with the factoring company, without giving any clear arguments in favor of refusal.

Experts explain the client’s reluctance to cooperate with the Factor by the fact that the instrument appeared on the market not so long ago, almost nothing is known about the mechanism, and everything new is usually frightened by the unpredictability of possible nuances. At the same time, cooperation with a logistics company based on factoring often turns out to be more profitable than the usual deferred payment. If the counterparty cannot repay the debt after the end of the grace period, he gets the opportunity to make a payment during the “waiting period”. For some factoring companies, this period is up to 120 days, while penalties and increased interest are not charged on the amount.

Often the unwillingness of the counterparty (customer, supplier) to cooperate with factoring is due to the fact that the customer wants to resolve all issues with the logistics company in one person and only in his favor. The service provider should carefully consider cooperation with such a customer – there is a risk of deviation from the concluded contractual obligations.

And one more moment. When choosing a factoring company in the trucking business, be sure to familiarize yourself with the features of the organization’s activities. Most factors cooperate with clients on flexible terms, adjusting the services provided to a specific client.