Accounts receivable financing and trucking factoring

Invoice factoring is also known as accounts receivable factoring. It has become a concept of increased significance. It is a type of financing method in which a business sells its accounts receivable or bills or unpaid invoices to the factoring company. So, it is a financial transaction that happens between a business company and a factoring company. When the business sells its accounts receivables to a factoring company, the factoring company provides immediate cash to the business in return.

It is used by businesses to get a certain amount of cash in less time. Rather than waiting for their clients to pay and clear their bills after 60 to 90 days, it is a way in which the companies get immediate cash from the factoring company to carry out their daily expenses.

Factoring is hence beneficial to both the party because it allows the business company to continue its work and do not stop due to the lack of cash flow. On the other hand, the factoring company retrieves payment from the clients of the business company and charge their fee from the business company. A great benefit to the business company is that the factor companies take the entire risk of collecting the payment against the account receivables. They just charge the factoring fee from the business companies, which is a part of the amount of the receivables that are collected by them. the fee can either be a fixed percentage of the amount or can depend on the things like the quantity of the receivables, the type of industry they are working with, the creditworthiness of the clients of the company, number of outstanding days, and many more factors.

There are two kinds of factoring methods. The first one is the recourse factoring and the other one is the non-recourse factoring. In the recourse factoring, the factor companies charge a lesser fee as compared to the non-recourse factoring. It is because, in the recourse factoring, the factoring company does not ear the risk of bad debts. In fact, the factoring company can as for their pending money from the business company if it does not get the same from the clients of the company. In a non-recourse factoring method, the factoring company bears the risk if the clients of the company decide not to pay the bill. In this case, the business company bears no liability. The fee for non-recourse factoring is obviously higher as compared to the recourse factoring.

Trucking factoring has become a savior for the business companies who have late-paying clients. They always have the cash in hand so that they can proceed with important expenses such as paying salary to the staff, fuel, maintenance, repairs of the damage, insurance, etc.