Nowadays, it is in fashion to say that times are bad, that you need to keep liquid to stay afloat, and that competition is so stiff that you have to really sacrifice the profit margin to keep old business and get new ones. These trends are particularly true for the small to medium trucking business, which is why freight factoring is such an important option to have.
Freight transportation in the US is primarily accomplished using trucks, which in 2006 hauled nearly 70% of the total freight volume, or revenues in excess of $600 billion. It sounds that business is good, but these figures are deceptive. With the rising costs of diesel and the growing competition for contracts, many small trucking companies are shaving it close to the bone. More than 900 trucking companies with 5 trucks or more filed for bankruptcy in the January-March period of 2008; the research did not include trucking companies with less than 5 trucks, which would probably make the outlook even more grim.
The biggest problem for small to medium trucking businesses is liquidity. Most trucking contracts require a credit period of 30, 60, or even 90 days, so truckers have to wait for as long as three months or even longer to get their money. In the meantime, rent, utilities, payroll, fuel and other overhead and regular expenses have to be met. Big trucking companies usually have the juice to meet these expenses, but for the independent contractors and smaller companies, it is literally a hand-to-mouth existence.
Freight factoring solves the problem of liquidity by enabling truckers to get the money from jobs as soon as they get a signed invoice instead of waiting a minimum of a month after the job has been done. While there is a fee for this accommodation, the savings on cost of money more than makes up for the difference. If freight factoring is handled correctly, meaning that trucking companies use this option only when needed, it can mean the difference between bankruptcy and continuity.