Freight Factoring As A Billing Solution

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We live in an information age. It means information, photographs, and even money change hands instantly across thousands of miles. Yet no matter how small our information world becomes, the globe itself is as big as ever. And when a person in one place needs something that’s in another place, there’s no other option but to have it shipped somehow. That creates billing problems that demand a billing solution.

Freight Factoring As A Billing Solution
Freight Factoring As A Billing Solution

A Growing Business Opportunity

Transporting freight remains one aspect of our daily lives that cannot be replaced with internet technology. That makes it a great opportunity for someone who is looking to start a new business. After all, one of the most important things to look for in a potential business venture is staying power. You don’t want to invest your life in an enterprise that could be made obsolete by new technology in just a few years.

If you’ve seen that important characteristic of the shipping business, you may choose to make living in it. And you probably understood even before you started that getting paid for your work is essential. You’ve got a fleet of vehicles to maintain, staff to pay, and all the usual overhead of utilities, insurance, and the like.

The Complications of Shipping for Small Businesses

Your rigs rumble around the country making efficient, accurate deliveries. But how is the staff back at the home base going to make sure that the proper payment is received? There are several avenues you can pursue to meet this goal, each with its unique benefits and challenges. The most effective is freight factoring, and here’s why.

You could require prepayment, but that’s a tough sell. As a new player in the market, you’d have to offer something very valuable to customers in exchange for prepayment. That’s because no other company is doing that. An effort to this end would send your customers scattering faster than the morning’s first loads. They’ll go straight to your competitors, and you won’t last. So prepayment will easily backfire. Cross it off the list.

Regular billing is the usual method of operation. Somebody has you perform a service for a quoted price. You perform it, you bill them, and then they pay you. It’s very straightforward in theory, but it’s rarely effective in practice.

That’s not to say that your customers will be a bunch of deadbeats who won’t pay their bills. The point is that they may be slow to pay. This is due either to slow cash flow, billing questions, or simply a heavy workload that pushes bill payment to the back burner. Remember that many companies that use shipping services are smaller firms because larger companies often run their own fleets. Smaller companies have smaller staffs, and accounts payable is often juggled by the same small staff (or a lone individual). That person may also deal with receivables, payroll, and maybe even HR.

Freight Factoring to the Rescue

So what’s the solution? How do you capture the nice market share represented by the smaller firms? Freight factoring is the solution.

Factoring is a simple process by which you are paid for a shipment by the factoring company, less a discount for their work. That work involves billing the customer on your behalf, then following up to ensure they remain current.

It’s a perfect option for the shipping company. First, you get the money right away. The fee withheld by the factoring company is more than made up for by the reduction in labor on your end. You also save on the potential late fees you may incur by running late on your payables, thanks to slow receivables.

Second, the work is out of your hands. Instead of handling a protracted invoicing and billing system in-house with staff that is already handling other tasks (just as your customers are), you are farming it out to a firm that specializes in the work. They have the experience, personnel, software, and time to do things efficiently and accurately. They get the invoice and you get the money. That’s it.

The last benefit is one that’s particularly appealing to small companies. It can be awkward to pursue late invoices from a company that’s owned by friends or neighbors. A factoring company inserts a go-between that provides some separation and makes things more comfortable. In fact, since you’re getting paid up front, you never even know if your best friend might not have paid yet.

Running a business successfully means getting paid accurately and quickly. When shipping is your business, factoring can provide a fair and effective way to keep your own bills current whether or not your customers are current with you.

( Photo by JLaw )

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5 Responses to Freight Factoring As A Billing Solution

  1. I read your article and have to admit I am not too knowledgeable about the shipping/freight business. But the problem certainly makes sense to me. Your solution seems reasonable to me.

    Here’s something to think about. Blockchain. Blockchain could guarantee fast, immutable payment at the time of delivery. I recently heard a podcast that interviewed a leader in a firm in Australia about using blockchain for grain transactions.
    To learn more, got to https://www.agridigital.io/about

    So, I know only a smidgen about blockchain but it seems like it could be your freight factoring answer.

  2. What you described shows like one of the apps that I have seen advertised for small business that helps with billing, collection of funds, basically an accounting service without staff. Any well run company needs some method to keep an organized system of funds incoming (payments) versus outgoing (costs).

  3. Hi Maria Rose – I actually did a review on one of those companies, much as Walter wrote, one that uses blockchain technology, and works primarily on the billing and tracking side. It’s an upstart, but it’s interesting.

  4. Good to hear that you reviewed at least one of these companies because with labor costs taking so much of business costs, we have to, just like the big guys, find ways to be successful with minimal impact to the bottom line which where a successful business gauges its standing. When it comes to the accounting part of a business, you want something/ someone who won’t screw the business out of funds. As a successful entrepreneur, you are going to be more intense with the operation part than the backup part of the business, even though it is an essential part also. Look at all those people who sell crafts via Esty as examples of small businesses. Thanks to technology a small business owner can use the same tools that big businesses use.

  5. You’re making an excellent point about small business Maria Rose. Technology has really been an equalizer. The small entrepreneur can have a lot of the same advantages as the big guys, in a way that didn’t exist 20 or 30 years ago. That’s why we have to stay on top of advances, to see where they can create cost savings. More advances are coming out all the time, and you can never know which one will fix a specific problem you have.

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