Should you factor freight to optimize cash flow?

April 7, 2022

The average cost of operating a commercial truck is high, and it’s only getting higher in the face of issues like rising gas prices and various shortages of critical resources. For a trucking company that’s only just beginning to find its footing, these issues make one of the most difficult stages of your business even more challenging. With such a high cost to do business, it can be tough to bridge the gap between starting up your business and making that business profitable.

The bridge between launching your business and consistently earning a profit is optimizing your cash flow to make sure you always have enough capital on hand to keep up with your operating expenses. This is made more difficult by the fact that your invoices could take as long as 45 days to process, meaning you may end up waiting over a month to receive the money you’re owed for the freight you’ve delivered.

That’s where freight factoring comes in. Rather than waiting weeks for the money you’re expecting to receive, freight factoring puts that money in your hands in as little as one or two days.

It’s crucial to consider the benefits this service has to offer in the pivotal beginning stages of your business’ growth. That’s why in this blog post, we’re going to dive deeper into the details of taking your business to a stage of profitability, the importance of good cash flow in that process, and why you may want to factor freight to make it happen.

The gap between launching your business and making a profit

There are plenty of good reasons to get into the trucking business if profit is your goal. Driver shortages, increased demand for freight, and rising rates all contribute to an environment where opportunities abound for trucking business owners, whether you’re managing a fleet of vehicles or operating as an independent contractor yourself. Reaping the benefits of these circumstances, though, comes at a cost that’s only getting higher.

In 2017, the average cost of operating a truck was $66.65 per hour, and that number is sure to only increase as time goes on. In the time since that finding, the cost of diesel (along with all other types of gasoline) has also risen, as well as the price of tires and other essential trucking commodities.

Taken together, all of this means that even if you have enough to cover thousands of dollars in start-up costs, you need to be able to keep up with the increasing cost of doing business if you expect to make a profit.

Optimizing your cash flow

Your cash flow is what allows you to keep up with the necessary costs of operating your truck. The processing of your invoices for the freight you deliver is your main source of revenue, though of course, you need to differentiate between how much you’re receiving and how much you get to actually keep.

Operating costs, taxes, and other factors all need to be considered when thinking about how much money you need to have on hand to keep your business moving for the next several months. When you’re waiting potentially over a month to receive the money you’re due for the work you’ve performed, having that money on hand is more challenging, especially at the early stages of your business when profits are low.

How freight factoring can help

As mentioned previously, freight factoring gets the money earned from your work into your hands faster. It’s performed by a third-party service that purchases your invoices from you at a discount. The trade-off is that you’re receiving slightly less money than you otherwise would have, but you’re receiving it much more quickly, allowing you to keep up with expenses more easily.

BP Financing offers freight factoring services that can get you the money you’ve earned in potentially just hours. For more information or to get started, get in touch with us now!

Sunset on Semi Truck