If you are the owner of a small freight brokerage and have a hard time with cash flow because your clients aren't paying as soon as you like, factoring might be something that can help you. Factoring is a process in which you hand over your accounts receivable portfolio to a factoring company and they give you the money owed to you by clients right away. Then, as payments come in from your clients, those payments go to the factoring company. For giving you money up front, the factoring company charges you fees over the life of a contract. Here are some questions to ask potential factoring companies so that you can get the money you need for your business.
What Information Do You Need In Order to Approve My Company?
If you want to use a factoring company, you are likely hoping for a quick turnaround so that you have the cash flow to pay employee salaries and fuel your trucks. However, you must be aware that factoring companies have different approval processes which necessitate different wait times for approval.
To move things along, be sure to ask exactly what they are looking for during the application process so you can provide them with any documentation quickly so they can make a decision as soon as possible. For instance, they may investigate your credit history and the payment history of your clients, so be sure to make that information available to them.
What is the Term of a Typical Contract?
Some factoring companies have restrictive, long term contracts. Seek out factoring companies that have flexible arrangements in place so that you are free to take back your accounts receivable portfolio whenever you like. If you plan to seek a business loan for another purpose, a flexible factoring agreement might be especially valuable because you may not want to pay factoring fees in addition to loan payments.
Will You Contact My Clients?
When you enter into an agreement with a factoring company, it is important to know who will have the responsibility of contacting clients and telling them where to send their payments while your factoring agreement is in place. Many factoring companies do this for you, but some do not.
Now that you know some things you should ask when considering factoring companies for your freight brokerage, use the questions above to act as a guide and help you make the right decisions. With the right factoring company in your corner, your business will have an opportunity to thrive.
Share16 October 2015
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