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The Logistics and Transportation Industry in the United States
The logistics and transportation industry in the United States is highly competitive. By investing in this sector, multinational firms position themselves to better facilitate the flow of goods throughout the largest consumer market in the world.. International and domestic companies in this industry benefit from a highly skilled workforce and relatively low costs and regulatory burdens.
Spending in the U.S. logistics and transportation industry totaled $1.33 trillion in 2012, and represented 8.5 percent of annual gross domestic product (GDP). Analysts expect industry investment to correlate with growth in the U.S. economy.
A highly integrated supply chain network in the United States links producers and consumers through multiple transportation modes, including air and express delivery services, freight rail, maritime transport, and truck transport. To serve customers efficiently, multinational and domestic firms provide tailored logistics and transportation solutions that ensure coordinated goods movement from origin to end user through each supply chain network segment.
This subsector includes inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply and demand planning, third-party logistics management, and other support services. Logistics services are involved at all levels in the planning and execution of the movement of goods.
Air and express delivery services (EDS):
Firms offer expedited, time-sensitive, and end-to-end services for documents, small parcels, and high-value items. EDS firms also provide the export infrastructure for many exporters, particularly small and medium-sized businesses that cannot afford to operate their own supply chain.
High volumes of heavy cargo and products are transported long distances via the U.S. rail tracking network. Freight rail moves more than 70 percent of the coal, 58 percent of its raw metal ores, and more than 30 percent of its grain for the nation. This subsector accounted for approximately one third of all U.S. exports.
This subsector includes carriers, seaports, terminals, and labor involved in the movement of cargo and passengers by water. Water transportation carries about 78 percent of U.S. exports by tonnage, via both foreign-flag and U.S.-flag carriers.
Trucking: Over-the-road transportation of cargo is provided by motor vehicles over short and medium distances. The American Trucking Associations reports that in 2012, trucks moved 9.4 billion tons of freight, or about 68.5 percent of all freight tonnage transported domestically. Motor carriers collected $642 billion in revenues, or about 81 percent of total revenue earned by all domestic transport modes.
American Association of Port Authorities
American Society of Transportation and Logistics
American Trucking Associations
Association of American Railroads
Council of Supply Chain Management Professionals
Express Delivery and Logistics Association Industry Publications:
Journal of Commerce
Material Handling & Logistics
North American Industry Classification System For Transportation
The Transportation and Warehousing sector includes industries providing transportation of passengers and cargo, warehousing and storage for goods, scenic and sightseeing transportation, and support activities related to modes of transportation. Establishments in these industries use transportation equipment or transportation related facilities as a productive asset. The type of equipment depends on the mode of transportation. The modes of transportation are air, rail, water, road, and pipeline.
The Transportation and Warehousing sector distinguishes three basic types of activities: subsectors for each mode of transportation, a subsector for warehousing and storage, and a subsector for establishments providing support activities for transportation. In addition, there are subsectors for establishments that provide passenger transportation for scenic and sightseeing purposes, postal services, and courier services.
A separate subsector for support activities is established in the sector because, first, support activities for transportation are inherently multimodal, such as freight transportation arrangement, or have multimodal aspects. Secondly, there are production process similarities among the support activity industries.
One of the support activities identified in the support activity subsector is the routine repair and maintenance of transportation equipment (e.g., aircraft at an airport, railroad rolling stock at a railroad terminal, or ships at a harbor or port facility). Such establishments do not perform complete overhauling or rebuilding of transportation equipment (i.e., periodic restoration of transportation equipment to original design specifications) or transportation equipment conversion (i.e., major modification tosystems). An establishment that primarily performs factory (or shipyard) overhauls, rebuilding, or conversions of aircraft, railroad rolling stock, or a ship is classified in Subsector 336, Transportation Equipment Manufacturing according to the type of equipment.
Many of the establishments in this sector often operate on networks, with physical facilities, labor forces, and equipment spread over an extensive geographic area.
Industries in the Truck Transportation subsector provide over-the-road transportation of cargo using motor vehicles, such as trucks and tractor trailers. The subsector is subdivided into general freight trucking and specialized freight trucking. This distinction reflects differences in equipment used, type of load carried, scheduling, terminal, and other networking services. General freight transportation establishments handle a wide variety of general commodities, generally palletized, and transported in a containeror van trailer. Specialized freight transportation is the transportation of cargo that, because of size, weight, shape, or other inherent characteristics require specialized equipment for transportation.
Each of these industry groups is further subdivided based on distance traveled. Local trucking establishments primarily carry goods within a single metropolitan area and its adjacent nonurban areas. Long distance trucking establishments carry goods between metropolitan areas.
The Specialized Freight Trucking industry group includes a separate industry for Used Household and Office Goods Moving. The household and office goods movers are separated because of the substantial network of establishments that has developed to deal with local and long-distance moving and the associated storage. In this area, the same establishment provides both local and long-distance services, while other specialized freight establishments generally limit their services to either local or long-distance hauling.
General Freight Trucking
This industry group comprises establishments primarily engaged in providing general freight trucking. General freight establishments handle a wide variety of commodities, generally palletized, and transported in a container or van trailer. The establishments of this industry group provide a combination of the following network activities: local pickup, local sorting and terminal operations, line-haul, destination sorting and terminal operations, and local delivery.
General Freight Trucking, Local
This industry comprises establishments primarily engaged in providing local general freight trucking. General freight establishments handle a wide variety of commodities, generally palletized and transported in a container or van trailer. Local general freight trucking establishments usually provide trucking within a metropolitan area which may cross state lines. Generally the trips are same-day return.
General Freight Trucking, Long-Distance
This industry comprises establishments primarily engaged in providing long-distance general freight trucking. General freight establishments handle a wide variety of commodities, generally palletized and transported in a container or van trailer. Long-distance general freight trucking establishments usually provide trucking between metropolitan areas which may cross North American country borders. Included in this industry are establishments operating as truckload (TL) or less than truckload (LTL) carriers.
General Freight Trucking, Long-Distance, Truckload
This U.S. industry comprises establishments primarily engaged in providing long-distance general freight truckload (TL) trucking. These long-distance general freight truckload carrier establishments provide full truck movement of freight from origin to destination. The shipment of freight on a truck is characterized as a full single load not combined with other shipments.
General Freight Trucking, Long-Distance, Less Than Truckload
This U.S. industry comprises establishments primarily engaged in providing long-distance, general freight, less than truckload (LTL) trucking. LTL carriage is characterized as multiple shipments combined onto a single truck for multiple deliveries within a network. These establishments are generally characterized by the following network activities: local pickup, local sorting and terminal operations, line-haul, destination sorting and terminal operations, and local delivery.
Specialized Freight Trucking
This industry group comprises establishments primarily engaged in providing local or long-distance specialized freight trucking. The establishments of this industry are primarily engaged in the transportation of freight which, because of size, weight, shape, or other inherent characteristics, requires specialized equipment, such as flatbeds, tankers, or refrigerated trailers. This industry includes the transportation of used household, institutional, and commercial furniture and equipment.
Used Household and Office Goods Moving
This industry comprises establishments primarily engaged in providing local or long-distance trucking of used household, used institutional, or used commercial furniture and equipment. Incidental packing and storage activities are often provided by these establishments. Specialized Freight (except Used Goods) Trucking, Local
Specialized Freight (except Used Goods) Trucking, Long-Distance
This industry comprises establishments primarily engaged in providing long-distance specialized trucking. These establishments provide trucking between metropolitan areas that may cross North American country borders.
A freight broker is an individual or company that serves as a liaison between another individual or company that needs shipping services and an authorized motor carrier. Though a freight broker plays an important role in the movement of cargo, the broker doesn't function as a shipper or a carrier.To operate as a freight broker, a business or individual must obtain a license from the Federal Motor Carrier Safety Administration (FMCSA). Freight brokers are required to carry surety bonds as well.
Freight broker services are valuable to both shippers and motor carriers. Freight brokers help shippers find reliable carriers that might otherwise be difficult to locate. They assist motor carriers in filling their trucks and earning money for transporting a wide variety of items. For their efforts, freight brokers earn commissions.
Freight brokers use their knowledge of the shipping industry and technological resources to help shippers and carriers accomplish their goals. Many companies find the services provided by freight brokers indispensable. In fact, some companies hire brokers to coordinate all of their shipping needs.
Often, freight brokers are confused with forwarders. Though a freight forwarder performs some of the same tasks as a freight broker, the two are not the same. A forwarder takes possession of the items being shipped, consolidates smaller shipments, and arranges for the transportation of the consolidated shipments. By contrast, a freight broker never takes possession of items being shipped thus in the absence of negligent entrustment, a freight broker is not normally involved as a party litigant in a cargo claimdispute, although as an accommodation, the freight broker may assist the shipper at their request and expense with filing freight claims.
NAICS Index Description
Bulk mail truck transportation, contract, local 484110
Container trucking services, local 484110
General freight trucking, local 484110
Motor freight carrier, general, local 484110
Transfer (trucking) services, general freight, local 484110
Trucking, general freight, local 484121
Bulk mail truck transportation, contract, long-distance (TL) 484121
Container trucking services, long-distance (TL) 484121
General freight trucking, long-distance, truckload (TL) 484121
Motor freight carrier, general, long-distance, truckload (TL) 484121
Trucking, general freight, long-distance, truckload (TL) 484122
General freight trucking, long-distance, less-than-truckload (LTL) 484122
LTL (less-than-truckload) long-distance freight trucking 484122
Motor freight carrier, general, long-distance, less-than-truckload (LTL) 484122
Trucking, general freight, long-distance, less-than-truckload (LTL) 484210
Furniture moving, used 484210
Motor freight carrier, used household goods 484210
Trucking used household, office, or institutional furniture and equipment 484210
Used household and office goods moving 484210
Van lines, moving and storage services 484220
Agricultural products trucking, local 484220
Automobile carrier trucking, local 484220
Boat hauling, truck, local 484220
Bulk liquids trucking, local 484220
Coal hauling, truck, local 484220
Dry bulk trucking (except garbage collection, garbage hauling), local 484220
Dump trucking (e.g., gravel, sand, top soil) 484220
Farm products hauling, local 484220
Flatbed trucking, local 484220
Grain hauling, local 484220
Gravel hauling, local 484220
Livestock trucking, local 484220
Log hauling, local 484220
Milk hauling, local 484220
Mobile home towing services, local 484220
Refrigerated products trucking, local 484220
Rubbish hauling without collection or disposal, truck, local 484220
Sand hauling, local 484220
Tanker trucking (e.g., chemical, juice, milk, petroleum), local 484220
Top-soil hauling, local 484220
Tracked vehicle freight transportation, local 484220
Trucking, specialized freight (except used goods), local 484230
Automobile carrier trucking, long-distance 484230
Boat hauling, truck, long-distance 484230
Bulk liquids trucking, long-distance 484230
Dry bulk carrier, truck, long-distance 484230
Farm products trucking, long-distance 484230
Flatbed trucking, long-distance 484230
Forest products trucking, long-distance 484230
Grain hauling, long-distance 484230
Gravel hauling, long-distance 484230
Livestock trucking, long-distance 484230
Log hauling, long-distance 484230
Mobile home towing services, long-distance 484230
Radioactive waste hauling, long-distance 484230
Recyclable material hauling, long-distance 484230
Refrigerated products trucking, long-distance 484230
Refuse hauling, long-distance 484230
Rubbish hauling without collection or disposal, truck, long-distance 484230
Sand hauling, long-distance 484230
Tanker trucking (e.g., chemical, juice, milk, petroleum), long-distance 484230
Tracked vehicle freight transportation, long-distance 484230
Trash hauling, long-distance 484230
Trucking, specialized freight (except used goods), long-distance 484230
Waste hauling, hazardous, long-distance 484230
Waste hauling, nonhazardous, long-distance
Information for the state of
Saves yourself stress of thinking how to deal with your receivables.
Top Trucking Factoring Companies
Truck Factoring is available for companies of all sizes, ranging from a one person business to Fortune 500 companies. Every business can use Truck Factoring as an effective way of increasing their cash flow -Top Trucking Factoring Companies
GET RID OF MONEY WORRIES FOR GOOD
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Factoring in the Future of a Trucking Business: A Story
John Thompson let the phone ring on his desk. He let his morning coffee cool and left his cigarette to ash itself in the tray, because he is trying to make the biggest decision ever for his trucking company. Thompson Trucking Company was at a turning point of growth and John had to decide if signing with a factoring company was the right way forward.
John's father had started as an owner-operator and had grown Thompson Trucking Company into a fifteen trailer fleet over forty years. There had been some hard times when it seemed everything was going to go under and even John's mother strapped herself into a cab to make hauls. His father had lived long enough to witness the price of hires drop during the recession and watch the eruption of fuel prices afterwards. Now the company was solely in John's hands and he wanted to live to see it in better shape for his sons.
To move Thompson Trucking Company ahead into the future, he needed a steady cash flow but there was just not enough money to go around. His employees needed to be paid. They had families and household bills too. Some of the refrigerated trailers were in need of repairs and he felt to stay competitive it was also a good idea to invest in specialized haulers to be ready for the constant requests he was getting for loads of new energy and agriculture equipment. Every time he had to turn down a request, Thompson Trucking looked weak in a very strong market.
His father would have told him to wait and to take his time adding on new technology. John allowed himself a good hard chuckle. His father had been against placing GPS units in the cabs. He would say, "Why do you need the voice of some woman to tell you to get off at an exit that has been the same exit that has been there for years?" Also his father had the habit of teasing all the drivers he caught switching into automatic even though driving in automatic was much more efficient though not manly in his father's eyes. His father days were long gone and technology was actually an important improvement for the business such as having Qualcomm to cut down on fruitless time communicating on the phone for bills of lading.
John believed a successful man is always thinking of his next step. What would be the next step for Thompson Trucking? And how would he be able to afford it? Funding was all tied up in the mortgage for the office and garage and in the fuel bills. He just finished paying off the small bank loan for installing satellite radio in the trucks for the guys.
But was factoring the answer? There was a lot he didn't understand about the process. It sounded a lot like ninth grade algebra which just didn't feel like it belonged as part of the trucking business. Factoring companies buy your invoices and manage your accounts receivable for a certain percentage of the invoiced amount. The factoring company gives the trucking business its payment right away which allows the business to have continuous cash flow so it can pay employees, buy fuel, and make repairs for upcoming hauls. Without the assistance of factoring, you have to wait for customers to send you the payment which is often 30 days late. In those 30 days, a trucking company can't pay its bills and employees in invoices.
Now it was time for John to do his homework. John had heard that there were companies that charged for same day money transfers and would only advance a percentage of the money owed to your company while holding the rest in a private account if they didn't get their bill payment within 60 or so days. Plus it was worse still if the customer didn't pay up at all because then the factoring company would take it right out of the money supposed to be coming to you! Through the grapevine, he'd also heard about how some companies suddenly slipped you onto a sliding scale of percentages even if you had already signed a lengthy contract for maybe 3% or 7% so there you are with 10% coming as a cost to you out of the freight bill. His friend Ronnie who had a trucking business in Missouri, was run nearly into the ground by a factoring company that charged him the full freight bill on top of the factoring fees. Well, what was the point of going to a factoring company if there was shady business like that going on?
But it turned out to be quite easy. All the factoring companies he researched were open about their business practices and very friendly on the phone when he called. Their customer service actually knew things about their company and spoke in nice clear English so he could understand what was being explained. He didn't mind signing an exclusive contract. He liked the idea of a long term commitment so he knew he wouldn't have to bother going back and forth to different companies and wasting time filing more forms. Nobody charged him for credit checks and they offered him a fuel advance on the pick-up of the load. Many companies offered a non-recourse factoring program that suited him just fine. Also he was happy to hear how much he was offered in terms of percentages on the freight bills. It was good money.
It was really refreshing dealing with the factoring people. They were more personable than those loan managers at the bank. It seemed as though those bank people spoke another language, but these factoring guys knew the trucking business and spoke to him like a client, not like a beggar for a handout. The factoring companies didn't worry over his credit and the debt troubles his father had had in the past of the company. Factoring was based on the credit of his customers and on their reliability which worked well for John because he and his father had built up good strong relationships over decades with their list of clients. So he knew they would understand when the factoring company contacted them for the invoices. His clients wouldn't think poorly of Thompson Trucking and the factoring companies appeared capable of handling the accounts receivable in the same polite manner that his father had used over the years.
John stepped out of his office to let his secretary know to expect the arrival of the factoring contract shortly. He felt exhilarated by the new possibilities that would make the future of the company fun again and put the stress of the difficult times behind him. With the capabilities of this new cash flow, John could actually expand Thompson Trucking Company further across the country and perhaps even go international into Canada. His heart felt full knowing his sons wouldn't have to worry about money because of the right decisions he had made for their trucking business.
Saves yourself stress of thinking how to deal with your receivables.
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Invoice Factoring: Helping Temp Staffing Agencies Grow
When a temp agency is experiencing a cash flow problem, they generally have two options: the first option is to apply to a bank or other lender for a business loan, and the second is to use Invoice Factoring. In this article we'll take a look at why Invoice Factoring may be the best option.
Many companies who bill their clients have discovered that Invoice Factoring is a very effective way of addressing cash flow issues, and this is also true for temp staffing agencies. Typically, temp agencies don't get paid by their clients until such time as their job vacancy has been filled and the employee hired has actually commenced work, which means that it's very common for temp agencies to experience cash flow problems.
Any advertising required to successfully place job candidates is paid for by the temp staffing agency, meaning that they're not able to invoice their client until they've found a suitable candidate and the candidate has actually started work. So, the temp staffing agency must wait to get paid.
Why Invoice Factoring Works Well for Temp Staffing Agencies
Temp staffing agencies are typically paid per hour, with the amount due being based on the number of hours their placement has worked. Of course, during this time they still have to pay their own bills, and these might include rent, payroll, advertising costs, utilities, and so on. So, it's easy to see that this can put a big strain on a temp agency's cash flow.
Many expenses incurred by a temp staffing agency can't be put off, so the agency must be able to access cash straight away: their employees need to be paid on time, as do their rent and utility bills. All businesses require office supplies, so money must be available to keep the business running smoothly. In addition, temp agencies must have money on hand for advertising job openings. For all of these reasons, it's not either feasible or practical for a temp staffing agency to apply for a business loan, then sit, wait, and hope to be approved.
These businesses need money and they need it now; and that's why Invoice Factoring may be the perfect solution to their cash flow problem.
Explaining Invoice Factoring
When a business makes the decision to use Invoice Factoring in order to generate cash, their cash-flow problem can be resolved almost immediately. In many cases, the business can secure up to 92% of the value of their invoice within 24 hours! A word of caution though: if this is the first time the temp agency has worked with a factor it could take longer - somewhere between four and seven days.
Any temp staffing agency that's experiencing a cash flow crisis, or even agencies that only occasionally experience cash flow problems, should do as much research as they can to learn about factoring and how it might help their business grow. With this knowledge they can then consider Invoice Factoring as and when the need arises. Factoring really is the perfect way for a business to access cash money when it's most needed. In many cases, once a relationship has been established with the factor, the money will be delivered within 24 hours.
Cash When You Need It!
Of course one of the major bonuses of invoice factoring is that temp staffing agencies no longer need to worry about whether they will or won't qualify for a bank loan, because factoring will take care of their cash flow crisis. All they need to do is provide their chosen factor with the invoices they wish to sell, complete with the time-sheets for each employee, and the cash that's due and payable to them can be deposited into their bank account within 24 hours. Now, temp agencies will have no problems meeting their monthly obligations, and best of all, there'll be no need to take on new debt.
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Business Is Great, but Our Company's Cash-Strapped!
There comes a time in the life of most businesses when cash flow becomes a problem, and it's not just during difficult times that this occurs. There are so many different reasons why businesses may need an injection of cash, like sudden growth, or perhaps wanting to purchase new equipment or service bigger clients. Every business at one time or another will require urgent funding to sustain or grow their business.According to research, many small and medium-sized businesses are failing, certainly not due to lack of sales, but solely because they're unable to meet their short-term financial obligations. Considering the time, money, and personal investment that goes into the creation of every business, the failure of a business to thrive has become a heartbreaking reality for many people. Why would a profitable and growing business find itself in financial trouble? The answer is very simple. When just one or more of your larger accounts hold off on paying their accounts for perhaps an additional 60 or 90 days, you've now got a cash flow problem.
Running Out of Funding Options?
When experiencing cash flow problems, business people typically depend on conventional lending sources for a corporate line-of-credit, and many find themselves applying for short-term bridging finance. And how many business owners admit to using their personal credit card to pay for business-related expenses? However, there are times when traditional methods of funding are no longer available, leaving the acquisition of extended financing a frustrating and sometimes impossible task.
Fortunately, there's a viable alternative today, one which has been around for a long time but one that many businesses are not fully aware of. There's now a way for businesses to avoid cash flow problems and continue growing their business from strength to strength, even during difficult times. Factoring, also known as Accounts Receivable Financing, Asset Based Lending (and various other terms) is an alternative form of financing, designed to help businesses through periods of expansion and business growth. Factoring has quickly become a very practical and workable financial solution for many businesses, and more and more we're seeing businesses from different industries look towards factoring to resolve their cash flow problems.
How Does Freight Factoring Work for Trucking Companies?
Basically, a business with creditworthy accounts receivables can use factoring to receive an immediate injection of cash on those receivables. Factoring companies will typically say yes when a bank says no, thus providing a business with a much-needed cash injection. The process of factoring is actually quite simple. Your trucking company needs cash, and because you have quality accounts receivables your chosen factoring company will purchase any number of those receivables and immediately provide you with cash - anywhere up to 90% of the value of your invoices. Once your customer has paid the factoring company the total amount of your invoice, the remaining balance will be forwarded to you - less the agreed-upon fees.
A good factoring company will respond quickly to its trucking company clients and provide them with personalized and professional attention. With freight bill factoring, a trucking company will always have its cash needs satisfied with cash flow. It may be true that, when compared to other means of lending, factoring is more expensive, but borrowers report that the benefits they receive far outweigh the cost.
Freight Bill Factoring Is Not A Loan
Perhaps the greatest advantage of invoice factoring is the fast turnaround time because, unlike banks, there's no loan approval process with factoring. This means that business owners of trucking companies can receive cash in-hand on the same working day! In order to be approved for freight factoring a trucking company must have creditworthy customers and have a good reputation; however, once approved for freight factoring the process of receiving funding is quite automatic. Cash advances will be made on the same day, and it's important to note here that future financing is only limited by the value and number of receivables involved.
Freight Bill Factoring Is Very Popular with Trucking Companies
In the last decade many trucking companies have taking advantage of freight factoring, mostly because it's a great alternative to bank financing. In fact, freight factoring is often recommended by trucking companies financial advisers or accountants. We know of many cases where freight bill factoring is solely responsible for trucking companies being able to accept and process orders from customers that otherwise would have declined due to a lack of financing. Freight bill factoring has saved many companies from severe financial crisis, and even bankruptcy.
It's now very clear that freight bill factoring is playing a very important role in today's business environment. This type of financing allows trucking companies to increase loads, expand their customer base, and even survive a seasonal slump. The truth is that freight bill factoring works, and it works well!
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Medical and Healthcare Invoice Factoring
Don't Wait to Be Reimbursed - You Can Receive Payment Today!
Anyone in the healthcare profession is painfully aware that third-party payers like Medicaid, Medicare, HMOs, Workers Compensation, and other private insurers, can take what appears to be an unnecessary long time to settle your accounts. But there's good news, because with 'factoring' there'll be no more long waiting periods to receive payment on your medical receivables. For anyone in the healthcare profession who provides any type of medical services, factoring is here to assist with cash-flow.
Is There a Difference between Medical Factoring and Healthcare Factoring?
There actually is a difference between these two types of factoring, even though we hear many people using these two phrases interchangeably. Basically, when there is no third-party payer involved, then healthcare factoring applies, and if a third-party payer is involved, then medical invoice factoring companies are used.
Healthcare and medical receivables factoring is available for the following services -
- Group and Sole Practitioners
- Physical Therapy and Rehabilitation Facilities
- Nursing Homes
- Durable Medical Equipment (DME)
- Medical Staffing Companies
- Medical Billing Services
- Medical Supply Companies
- Medical Coding Services
- Ambulance Providers
- Medical Transportation
- Medical Transcription Services
- Medical and Non-Medical Home Healthcare Providers
- Imaging Facilities Providing CT Scans, X-Rays, MRIs, and so on; and
- Many More!
Factoring for Healthcare Receivables
We typically associate healthcare receivables with customers who are not reliant on third-party payers. This includes sectors involved with medical staffing, medical supplies, medical transcription, medical coding and billing, and so on. Basically, it means that vendors who use healthcare factoring receive the benefits of an unlimited line-of-credit, all based on the services they provide.
You can see below that factoring healthcare receivables is a very simple process -
- As the healthcare vendor, you still invoice your customer for work you've completed. Some of the more common customers will include medical offices, nursing homes, hospitals, and so on.
- The next step is for the vendor to forward a copy of the invoice to the healthcare factoring company. Your factor will handle the collection of payment on your behalf.
- The factoring company will deposit an amount of money in the range of up to 85% of the gross value of the invoice into the vendors bank account within 24 hours, or less.
- The remaining (approximately) 15% will be held by the factor until such time as the account has been paid in full by the customer.
- Once the invoice has been paid in full by the customer, the factor will release the remaining 15%, less the agreed-upon fees, back to you, the vendor.
Factoring for Medical Receivables
Regardless of whether your business bills Medicaid, Medicare, Blue Cross/Blue Shield, a third-party insurance company, or HMOs, we have the perfect factoring solution for you.
The benefit to you of factoring your medical claims is that you'll receive upfront capital. It's the factor who will seek payment of your invoice.You can see below that factoring medical claims is a very simple process -
- As the provider, you'll continue submitting your claim to the third-party payer.
- At the same time, you'll submit a copy of the paperwork to your factoring company.
- The factoring company will deposit an amount of money in the range of up to 85% of the net collectable value into the vendors bank account within 24 hours, or less.
- Once the third-party payer pays your claim in full, the factor will release the remaining 15% (approximately), less the small agreed-upon factoring fee.
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"How a Factoring Company Saved This Owner of a Trucking Company Business"
Transportation industry plays a vital role in the economic scene. As people's lives become more and more sophisticated as time goes by, making the most out of the limited resources is the concern of all. Say for example the proper use of land to get optimum profit and convenience or what is known as the zoning. It is defined as the process of planning for land use to allocate certain kinds of structures in certain areas. This method separates the manufacturing sites from the sources of its raw materials, the employees and employers to their respective offices. This made the transportation industry play a vital role in the economic scene. It is a primary necessity for businesses of any size and of any type. It does not just transport raw materials to the manufacturers but also bring finished products into our every door.
Investing in a business which plays a vital role in the current economic scene is a thing that every investor should not think twice about. But business does not work that easy. The big question is, how you are going to survive the most challenging phase of establishing a business - the start. Starting a business requires a capital. If you now have enough money for capital, you can now start your business and since you are investing in a very promising type of business, finding customers is not a problem. The problem is, what if you found bad ones. Even if your customers are also managing a business and expecting cashflow, which does not guarantee that they would pay you up to date because some businesses are just ill-managed. For the business to survive, the most important thing that you would be doing is funding your operational cost - make payrolls, fuel, maintenance - it should rely on cashflow, but since things like mentioned above is very common, some business owners would resort for a loan. But that does not solve the problem of getting your receivables paid on time. As a business owner, you cannot afford the time it takes to collect the receivables, while trying to make your business grow.
Mr. Paul, an owner of a small trucking company experienced the same kinds of problems and shared how he managed to survive. "I just released my head from the stress of how am I going to get my receivables, and focused on making the business grow"¦"
Mr. Paul just got his retirement fee from a big trucking company for almost forty years and was thinking on how to double his money in the shortest time possible. Seeing a small trucking company as a business of great potential and is a business that he knows. When he was still driving a truck, he was fascinated by how much money the company is making. He has also never experienced a delay in his salary. When he decided to invest his retirement fee in establishing a small trucking company, everything was just according to what he expected. He started with a single truck from his home. He started with just a few clients, the ones he knew already and never missed one deadline and kept freight damage as minimal as possible. Because of his outstanding services he started to get referrals and had more work than he can handle. From then, he started to expand, bought more trucks, hired more personnel. Using the knowledge he acquired from the company that he had served for a very long time, and dedication to his work, his little business grew in a rate that he had never imagined. The business is now requiring a more strategic plan and when Mr. Paul thought that everything was going very well, he encountered problems that he failed to foresee.
He had customers that made him wait for weeks or even months before paying. Since his little business is rapidly growing, his operational cost is also growing . This is a problem that he never knew and never observed in his entire career as a driver of a trucking company since he was never in an administration role. He was at the verge of breaking down, his business is losing money, growing too fast, not big enough has to rely cashflow to keep up to his fast growing business. He had to make his payroll, pay his suppliers, maintenance and fill his orders. Mr. Paul thought of going to bank and apply for a loan but was denied. "Maybe because I had a bad personal credit...haha"
Mr. Paul thought of declaring bankruptcy because of the stress that he never imagined he will be handling. He had to think of how to manage his business and at the same time, how will he keep the business alive by thinking of a solution on how is he going to deal with his receivables.
"You know that time, I, I, I just don't know what to do... I felt that as the business kept growing and growing, I become more and more incompetent. Then suddenly, a hero came along... Just at the nick of time. "
Then a close friend of his introduced him to a factoring company and everything turned out just fine. So what is this factoring company then? What does it do? How did it save Mr. Paul's business?
Well, this is how it works, Mr. Paul sells his invoices or receivables to a factoring company at a discount and not in an amount where he can no longer make a profit. The factoring company will then be the one collecting the invoices of Mr. Paul's business from his customers. Say for example, Paul still has 100 dollars to collect from one of his customers. He then sells it to the factoring company at a lesser price, say 90 dollars. The factoring company will now be the one who is going to get the 100 dollars collectible from Paul's customer.
The factoring company immediately gave Mr. Paul the cashflow he needed. He now has instant customer credit checks. He can rest well and likes doing business with companies that pay their bills on time. Save him from the stress of thinking how to deal with his collectibles, thus saving time and money. He can now focus on growing his business and keeping his customers happy. Increase his sales and cashflow.
The Factoring Company not just saved Mr. Paul's start-up business but made it a big company now. It has helped Mr. Paul's business, why don't you let it help yours?
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Medical Factoring: Healthcare Professionals Choose Medical Factoring As Their Preferred Financing Option
Healthcare professionals are finding that business loans and commercial lines-of-credit are becoming more difficult to qualify for, so today we're seeing more healthcare professionals looking to medical factoring to alleviate cash flow problems. All types of medical and healthcare practices can benefit greatly by choosing to factor their receivables and thus receive immediate cash payments.
In the past, healthcare has typically been a resilient industry, but today we see this industry facing financial challenges that leave practices struggling to meet their own financial commitments. Cash flow was virtually a non-issue for medical facilities, professionals, and their suppliers, but today with Medicaid, Medicare, and private insurance companies working with strict reimbursement guidelines, professionals are forced to wait much longer than they previously waited to receive payment on their invoices. In addition, complicated documentation and billing requirements are resulting in fewer dollars and longer waiting periods.
Financial Difficulties Experienced by Healthcare Professionals
The above issues are creating serious problems for a large number of medical providers who not only must wait longer to get paid less money, but who are also forced to deal with growing operating expenses, including salaries and other benefits. Operating under these unsure conditions means that the viability of these businesses is being threatened and it's become almost impossible for them to pursue new growth opportunities. Today, a medical practitioner operating a relatively small practice could have receivables of up to $1 million tied up!
Any business that's confronted with cash flow problems will typically look to banks or other lenders for a loan. Offering the business a loan or line-of-credit can certainly be very helpful in the short term, but unfortunately neither of these products are an ideal financing solution because neither will permanently solve the real problem.
A business loan may be ideal for fixed capital purchases, but it's no solution at all for handling recurring business expenses. A line-of-credit can certainly be very helpful, but because it will have a credit limit and a fixed term it won't provide a renewable source of business capital. Once the credit limit has been reached or the term of the line-of-credit expires, the lender may either increase the credit limit or perhaps not renew it at all. It's a sad fact that, today, many healthcare professionals are finding themselves in this unfortunate situation.
Finding the Ideal Medical Financing Solution
The perfect financing solution would be one that's flexible and one that would provide a steady and reliable source of working capital. It would grow with the healthcare business, without the need to re-apply or having to approach a bank for an increase in the credit limit. In short, this perfect financing solution would provide working capital to finance both the current and future growth of the business. So, is there such a solution? Fortunately, yes there is! It's called medical factoring.
Explaining Medical Factoring
Medical factoring is a receivables factoring program designed exclusively for medical invoices. Because factoring medical receivables can be quite challenging, many factoring companies today are specializing only in the healthcare industry. It does require a certain amount of expertise to manage the medical claims process; plus, it becomes even more challenging when many healthcare receivables are either reduced or denied altogether by insurance providers.
What Types of Business Can Use Medical Factoring?
Many business owners are surprised to learn that factoring in general has been around for a long time. Medical service providers, in particular, seem to be completely unaware of the existence of factoring. The truth is that invoice factoring has become one of the most flexible and powerful business financing tools available today.
Many healthcare providers can benefit greatly from choosing medical factoring. Below we've listed just some of the healthcare service providers who can achieve huge benefits from a medical factoring program.
- Medical Centers
- Physicians: Both Specialists and General Practitioners
- Outpatient Clinics and Facilities
- Medical Staffing Services
- Medical Labs
- Dialysis Facilities
- Home Healthcare Providers
- Physical Therapy Clinics and Groups
- Rehabilitation Centers
- Medical Equipment Providers
- Medical Labs, and
- Many More
What Are the Benefits of Factoring Medical Receivables
The benefits to healthcare professionals are very similar to the benefits enjoyed by many businesses in many other industries. They include -
- Faster (almost immediate) payment;
- Increased percentage of billings collected;
- Consistent cash flow;
- Access to debt-free working capital;
- Stress-free outsourced accounting and collection; and
- Being able to improve your business credit.
Medical Practices Can Depend on Factoring for Reliable Cash Flow
Medical factoring is an excellent financing alternative for medical practices because practices receive consistent and flexible financing which is directly tied to their insurance claims. This means that the financing will increase as more claims are filed. It's highly desirable for all medical practices to achieve a scalable and reliable cash flow, thus ensuring sufficient liquid business capital to cover operating expenses.
And with medical supply companies the situation is very similar. Depending on the volume of sales these companies can achieve fast and predictable business financing by signing up for a medical factoring program. And, as sales continue to grow so does the amount of financing, providing the much-needed working capital required to both grow and maintain business operations.
Medical Receivables Factoring for Smaller Medical Offices
Medical factoring is especially beneficial for smaller medical offices. Office overheads and staffing expenses can be dramatically reduced because the factoring company will take control of the more tedious and time-consuming administrative work involved in collections and processing claims. This frees up remaining staff members to concentrate on delivering excellent medical care. If you're a small medical practice and you have good growth prospects but a slow cash flow, receivables factoring could well be the ideal tool to assist in financing the growth of your business. You'll find that many factoring companies have minimums, and there are factoring companies prepared to finance a medical office billing just $50,000 per month.
Explaining How Medical Factoring Works
In simple terms, if a healthcare business is dependent on third-party payors, those payments will be accelerated with medical factoring. Within just days of the initial billing, the majority of the amount billed will be deposited directly to the business's bank account. The instant rewards are a dramatic shortening of the collection cycle and the elimination of cash flow problems for the business concerned.
Importantly, receivables factoring is not a loan, so there are no credit or financial requirements; there will be no impact to your balance sheet and there are no arbitrary limits. Medical factoring is the ideal financing tool for business growth because you can factor as much billing as your business is capable of generating.
How Long before My Business Is Accepted for Factoring?
With medical factoring there are no lengthy delays, certainly not like when applying for bank finance! A medical factoring program will usually take around two weeks to set up. This timeframe allows the factor to determine the stability of the medical practice and to ensure the reliability of its third-party payors. Then, once a medical factoring program is in operation, the financing will be predictable and constant. Once claims have been submitted to the medical factoring company, claims are typically funded within 48 hours.
The process of medical factoring is very simple, as follows -
- Your medical practice periodically submits billings to Medicaid, Medicare, and insurance companies. At the same time, copies of these billings should be forwarded to your factor.
- Within 48 hours of receiving a copy of these billings, the factor will deposit an advance of up to 85% of net collectables into your bank account. The balance will be held by the factor until such time as the account has been paid in full.
- Once the factoring company has received payment in full, the balance of the billings - less the agreed-upon factoring fee - will be remitted to you.
Medical Factoring Fees
Medical factoring fees vary depending upon the size and types of claims generated by the medical practice. It's not known why medical factoring today is not as widely known as it is in other industries; however, interest in this type of financing is now becoming more popular and widespread as business owners are beginning to understand the many financial and other benefits of medical factoring.
Medical factoring in the healthcare industry is fast becoming a widely accepted tool to resolve shortfalls in working capital financing and as a long-term solution for patient accounting support and medical financing. It's certainly a tool that healthcare businesses should give careful consideration to because cash flow problems can stall growth and prosperity in businesses of all sizes and types.
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Benefits Of A Factoring Company Over A Traditional Bank Loan
Anyone who owns a business knows that there are times when the money goes out of your business much faster than it is coming in. This can put a company in a financial bind, making it difficult to purchase raw materials, pay their employees, or even keep the utilities on. The simple truth is that every company needs to have ready cash in order to keep their business running on an even keel and in order for it to grow. There are a number of different ways that a company can get the money they need to keep their business running and moving forward, but not all of these ways offer businesses the same freedom and benefits. This article will talk about two popular, but different types of financing available to business. The Traditional bank loan, and getting your financing through a factoring company.
Bank loans are an extremely traditional way for a business to get financing. While these loans are handy they are not available to every business. For example, a fairly newly established business simply may not have the assets to readily get a loan from a bank, even if they do, the standard collateral for a business loan is the business itself, which means that if you cannot make your loan payment, you risk losing your entire business. In addition, while you apply for a certain loan amount, that is all the financing you are entitled to. Once the loan is paid off, you can then apply for another loan if the need arises.
Factoring companies do not give loans, and the money you get from the factoring company does not put you in debt. Rather the financing you receive from a factoring company is based on money your business has all ready earned, but have not yet received. Factoring companies actually purchase your account's receivable or at least part of them for a percentage of their total worth, Normally around 80%-95%. The amount of money you can receive is based on the amount of money you have earned and the accounts receivable you are willing to "sell." Once you have set up factoring account it continues as long as you wish it too and the amount of money available to you even can grow as your business grows, giving you the ready cash you need to meet your own obligations.
Benefits of a Factoring Company Vs. A Bank Loan
While not every business can take advantage of factoring account financing (you have to have a business that has account receivables) for those that can use this type of financing there are several distinct benefits.
1. You Won't Incur Debt.
Since the factoring company actually buys your accounts receivable you don't actually incur debt like you do with a bank loan. This has many benefits including the fact, that this type of financing won't affect either your business credit rating or your personal credit rating. Should the unforeseeable happen and your business fails, you won't have to worry about anyone coming after your personal as well as your business assets to pay off a loan. With a bank loan, the debt goes onto your credit report, and even one late payment can adversely affect your businesses credit, and even the ability to get insurance and may even reflect upon your personal credit rating.
2. No Collateral Required.
Another benefit of using a factoring company instead of a traditional loan is that you aren't required to provide collateral to the factoring company in order to secure financing, because the company "buys" the accounts receivables; not loans you money based on them. In addition, while the factoring company does run a credit check on your customers whose accounts receivables are offered for financing, the state of your credit is not an issue. This makes it easier for fledgling businesses to get the financing they need through a factoring company (as long as their accounts receivables are in good order) then from a bank, who may not feel that you have been in business long enough to be worth the risk of issuing you a loan.
3. Receive Your Money Faster.
With a Factoring company you can actually get the money you need faster. Once the Factoring company assures itself that the customers in your accounts receivable are likely to pay their debt, the money is usually in the account within 24 hours. With a bank, there are vasts amounts of paperwork, then the loan has to be underwritten, which can take months before you actually see the loan if it is approved.
4. Interest is Paid Up Front.
Unlike a bank loan that continues to build interest that you have to pay the entire time you have your business loan with a factoring company, you don't have to continue to pay interest as they take it right off the top, deducting it from the total amount of accounts receivable. So not only are you relieved of those monthly loan payments, but you also don't have to worry about the building up of interest, as every penny in the account is yours to spend on the business.
As you can see, there are several benefits that makes considering financing through a factoring company over a traditional bank worthwhile. However, there are also a couple of other benefits that a factory company can offer your business is far beyond the scope of the bank. The most important benefits is that once you sell your accounts receivable to the factory company, you don't have to take time away from running your business to collect the money owed from reluctant to pay customers. The factoring company takes over that chore, since it is now their money to collect. Factoring companies are very good at collecting these debts, saving you the time and effort that you need to devote to your growing company.
In addition, since the factoring company evaluates the credit quality of your customers prior to purchasing the accounts receivable you gain valuable information into which customers are likely to pay and which ones are not so likely to pay.
While a Factoring company is not the only way for your business to obtain the money it needs to keep growing, it does offer a type of financing well worth considering.
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Medical and Healthcare Factoring
Receive Payment Today! No Waiting Weeks for Reimbursement!
It's certainly no secret that Medicaid, Medicare, HMOs, Workers' Compensation, and other private insurers can take a LONG time to pay your invoices! But now there's good news for healthcare professionals! Now you don't have to wait weeks, sometimes months, to collect on your medical receivables. If you're a healthcare professional and you provide medical or healthcare-related services of any type, we're here to help you!
The Difference between Healthcare Factoring and Medical Factoring
Healthcare factoring and medical factoring are phrases that are often used interchangeably, probably understandably, but there is a difference between these two. The difference is that healthcare factoring applies when there's no third party payer involved, while a medical factoring company is used when there is a third-party payer involved.
Healthcare Factoring and Medical Receivables Factoring are available for the following healthcare providers -
- Group and Sole Practitioners
- Physical Therapy and Rehabilitation Facilities
- Durable Medical Equipment
- Medical Coding Services
- Medical Billing Services
- Medical Supply Companies
- Medical Staffing Companies
- Medical Transportation
- Medical Transcription Services
- Ambulance Providers
- Nursing Homes
- Imaging Facilities, such as providers of X-Rays, MRIs, CT Scans, and so on
- Home Healthcare Providers - both Medical and Non-Medical,
- And more! Healthcare Receivables Factoring
Generally, healthcare receivables are associated with customers who are not third-party payers. Some common healthcare sectors include medical staffing companies, medical transcription services, medical billing and coding services, and medical supply companies. When these vendors utilize healthcare factoring they're free to enjoy the benefits of an almost unlimited line of credit - all based on the services they've provided. A simple explanation of factoring healthcare receivables is as follows-
- When work has been completed, the healthcare vendor will invoice their customer.
- These customers may include nursing homes, hospitals, medical offices, and so on.
- Next, the vendor will forward a copy of the billing documentation to the healthcare factoring company.
- Within 24 hours, sometimes even less, the factoring company will deposit money into the vendors bank account. The amount deposited will generally be around 85% of the gross value of the invoice.
- The factoring company handles collections on behalf of the vendor, and will retain 15% while awaiting payment.
- Once the invoice has been paid in full, the factor will release the 15% - less their factoring fee - back to the vendor.
Medical Receivables Factoring
- Regardless of whether you're billing Medicaid, Medicare, HMOs, Blue Cross/Blue Shield, or third-party insurance companies, we have the perfect factoring solution for you. When you start factoring your medical claims you'll achieve instant benefits by receiving upfront capital; while the factor may have to wait months for your customers to settle their accounts. A simple explanation of factoring medical claims is as follows-
- The healthcare provider submits claims to the third-party payer, as usual.
- A copy of completed paperwork is then submitted to the factoring company.
- Within 24 hours, sometimes even less, the factoring company will deposit money directly into the medical provider's bank account: the amount deposited will typically be around 85% of the net collectable value.
- Once the claim has been paid in full by the third-party payer, the factoring company will release the remaining 15% - less their factoring fee.
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The Basics of Invoice Factoring: Choosing a Factoring Company
Probably the biggest frustration for business to business (B2B) companies is waiting to get paid.Anyone involved in a seasonal business, long payment cycle, or lumpy cash flow will be able to relate to this statement. Some customers are very slow payers (of course corporate clients and governments come to mind!) and other customers demand generous terms.
Explaining Invoice Factoring
Basically, with invoice factoring your current but unpaid invoices are turned into cash - it's a financing solution for businesses. Other terms used for factoring are 'Accounts Receivable Financing', 'Invoice Financing 'and 'Receivables Financing'. Because many clients demand generous terms, it means that invoices can remain unpaid for anywhere between 30 and 90 days; while in the meantime you're left without cash and falling behind on important expenses, such as payroll, and missing opportunities to grow your business. And this is where factoring comes in: factoring reduces, and sometimes eliminates the frustration of unpaid accounts.
A receivable financing transaction usually involves three parties, and these are the company that initially issues the invoice, the customer who is required to pay the invoice (otherwise known as the account debtor), and the 'factor', which is the financing company prepared to supply the cash.
Explaining Invoice Financing
An invoice is issued to a customer after a company has delivered a service or product. This invoice will now be sold to the factor and, in return, the company will receive a cash advance: this will usually be between 70% and 90% of the invoice's value. With this cash the company finds it easier to pay employees; plus, it can now purchase supplies, materials, and inventory, and it can take on more work. Once the debtor pays their invoice the business will receive a rebate for the rest of the funds, less a fee which will be based on the value of the invoice and the term. This type of financial agreement benefits all three parties: the customer receives cash almost immediately, the debtor gets favorable payment terms, and the factoring company collects a fee.
Explaining the Difference between Traditional Bank Financing and Invoice Financing
There are, of course, both drawbacks and benefits to this type of financing for businesses. The obvious benefits of factoring are a simpler application process, quicker funding, and higher approval rates when compared to bank lending. Having access to cash allows a business to grow, to meet payroll, achieve supplier discounts for bulk purchases or early payment, and to purchase equipment in order to improve productivity.
Factoring has a very simple application process which eliminates some of the main hurdles placed on small businesses by banks. The speed of funding with factoring offers businesses the opportunity to take advantage of opportunities as they arise. In addition, the high approval rates with factoring means that many more businesses qualify, even though they may have previously been declined by a bank. Another bonus is that funds received from factoring invoices can be used to supplement bank credit, if necessary.
On the other hand, when it comes to cost, a line of credit at a bank is less expensive than factoring; this is assuming that the business will be successful in their application to the bank and that they'll have access to the finance within a reasonable timeframe. Unfortunately, these applications are not always successful (four out of five companies are refused bank loans), while others find the whole process too discouraging.
Another possible issue with working with traditional factoring companies is that some of these companies will advise your customers that their invoices have been financed: this information can cause issues for some small businesses because they prefer to maintain control over all correspondence with their clients. Other factoring companies actually take control of your account receivables. Our advice is that you look for a factoring company that's prepared to work on a non notification basis.
Receivables Financing Has Become Good Business Sense
Today we see factoring becoming quite commonplace in many industries, such as IT companies, professional services, wholesale trade, marketing, manufacturing companies and so on. Many, many industries are discovering the benefits of receivables financing.
Invoice factoring is an ideal solution for business to business companies who issue invoices payable within 15 to 90 days. Any B2B company who's experiencing rapid growth, long payment cycles, or lumpy cash flow, will benefit the most from accounts receivable factoring. On the other hand, businesses and business to consumer (B2C) companies that are paid on delivery and don't issue invoices would have no need of factoring services.
If you're interested in invoice financing and believe it may be an option for your business, see below for our tips on how to approach working with a factoring company.
How to Work with an Invoice Factoring Company
There are many advantages to invoice financing, but it can be tricky working with some traditional factoring companies. Some factoring companies don't have excellent customer service, and between confusing terms, long term contracts, monthly minimums, and hidden penalties, the experience can be quite daunting. Our aim is to ensure that you get a fair deal when working with a factoring company, and please remember that, as always, if a deal sounds too good to be true, then it probably is!
You're Looking for Transparent Factoring Fees and Rates
Companies that make it difficult to work out their all inclusive fees are companies who are working for their own advantage, so when determining pricing, transparency is key. If you're getting frustrated and not receiving direct answers, we suggest you move on to another factoring company that will be respectful of your time.
Another Word of Caution: Beware of receivables factoring companies who advertise low rates, which then increase when all their hidden fees come to light. We've heard of factoring companies who charge low monthly factoring rates, but you'll be charged for two months' even if the invoice was paid in one month and one day. We also know that some factors require monthly minimums, which means that you pay for financing even if it's not required. We strongly suggest that you read our article on factoring rates and tricks so that you approach factoring with knowledge and awareness.
Understanding Penalties, and How to Avoid Them
Be aware that some invoice factoring companies out there have hidden penalties. In order to avoid these penalties, you need to know why they occur. If you believe these penalties are out of proportion or unfair, then move on to another factor. It won't be long before you'll understand what fair and reasonable terms look like.
Read the Fine Print in Your Contract
In order to guarantee their profits, most factoring companies will try to lock you into a long term contract. Obviously this is good business for the factoring company, but it may not be so good for your business. You need to know what you're signing up for, so be aware of long term contracts where you'll be charged exorbitant cancellation fees if you should decide to leave.
Also, be aware that some long term contracts include minimums, so consider this carefully: you may find yourself paying for something you're not using when you only needed the factoring company to meet occasional cash flow needs. You shouldn't be forced to remain with a service that's not meeting your needs, so it's vitally important that you carefully read the fine print.
Once you start your research on factoring you'll discover that most factoring companies operate on a notification basis, which means that when you sell your invoices to the factor, they notify your customers. They'll also ask that the funds be routed directly to the factoring company's bank account, instead of your account. This can be an issue for business owners who prefer to have control of all communications with their customers. If discretion is important to you and your business,
we strongly suggest that your accounts receivable financing company provides non notification factoring, meaning that you retain control over customer communications. If this is not an option for your factoring company, then you need to move to a companythat will provide non notification factoring.
How Much Cash Will You Receive Upfront?
You'll receive an advance upfront, which is a percentage of the face value of the invoice. This advance will probably be somewhere between 70% and 90% of the invoice's face value. For example, let's say your customer owes you $1000: your advance payment should be somewhere between $700 and $900.
Factoring Minimums Compared with Single Invoice Discounting
You'll also notice in your research that many factors require small businesses to submit all invoices from certain customers. On the other hand, 'single invoice discounting', also known as 'spot factoring', means that the business concerned determines which invoices will be sent to the factoring company for advance payment. Make sure you understand your factoring company's terms before you sign anything. Single invoice discounting or spot factoring is generally the preferred method for small businesses because it enables you to retain control over your financing by determining which invoices will be sent for factoring.
Choosing Your Factoring Company
Think about all the above criteria, and look for a business partner who will provide your business with the best combination of flexibility, features, and terms that you require. By doing a little research you'll soon find a partner and an agreement that offers you the flexibility, funds, terms, and transparency that work best for you. Your aim is to find a partner that you'll be happy to work with long term, so don't settle for anything less.
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A 'Factor' is a third party commercial financial company who purchases the Accounts Receivable from businesses: this transaction is known as 'Factoring'. Factoring exists so that businesses can receive a quick injection of cash, as opposed to waiting the 60 or 90 days for customers to pay their invoices. Factoring is also known as Accounts Receivable Financing, and Invoice Factoring.
The majority of factoring companies purchase invoices and advance money to the business within 24 hours; however, the nature and terms of factoring can (and do) differ among financial service providers and industries. Depending on your customers' credit histories, your industry, and other specific criteria, the advance rate on your invoices can range from 80% to as high as 95%. The factoring company not only collects on your invoices; it also offers back office support to your business.Once the factoring company has collected on your customer's invoice,you'll be paid the balance of the invoice - less the factor's fee for assuming the risk. The primary benefit of factoring is that businesses no longer need to wait anywhere between one and three months for a customer to pay their accounts: they now have access to cash in hand so they can operate and grow their business.The Advantages of Factoring
There are a few reasons why factoring has become an invaluable financial tool for many businesses, including start ups. As mentioned above, the main benefit is that businesses can now receive a quick boost to their cash flow because factoring companies, in general, will provide cash on accounts receivable within 24 hours. This resolves the problems businesses experience with short term cash flow, and in many ways this injection of cash can help to grow a business. Besides handling your customer collections, factoring companies can also evaluate your customers' payment and credit histories.Other benefits of factoring include:
' It can be customized to a business's needs and managed to ensure that capital is available when it's needed;
' It's not based on your own business or credit history: it's based on the quality of your customers' credit;
' It's not based on your company's net worth: it provides a line of credit based on sales;
' There's no limit to the amount of financing, unlike conventional bank loans;
' This financing will not show up as a debt on your balance sheet, because it's not a loan.Who Uses Factoring?
Companies of all different sizes, including start ups, use factoring; and today factoring has become common business practice across many industries. Factoring is now widely used in the transportation industry, including manufacturing, textiles, trucking, oilfield services, wholesale and distribution, and staffing agencies. Interestingly, factoring receivables is practiced in many countries around the world and has a long history of success.
Can I Factor? My Company's New, with No Financial History
Yes, you can! In fact, factoring has become an excellent tool for start up companies because no company credit history or balance sheet is required. It's not really your company's finances that the factoring company is concerned with; they'll base their financing on your customers' payment histories and credit scores.
What Percentage of My Invoices Should I Factor?
The answer to this question really depends on the unique needs of your business. Some companies only factor invoices for customers who typically take a long time to pay, while others factor all their invoices. The receivables that a company can factor range anywhere from a few thousand dollars to millions of dollars each and every month.
What's the Difference between Factoring and a Bank Loan?
' The difference between factoring and a bank loan is that you're not assuming any debt with factoring because it's not a loan;
' With factoring, there's no emphasis on your balance sheet - it's all on your customer's invoices;
' In addition, a bank loan is typically one lump sum, whereas factoring provides a steady flow of funds;
' Factoring companies can also help improve your company's balance sheet by assisting with your credit and collection functions;
' A bank loan adds to your debt, whereas factoring converts receivables (an asset) into cash (another asset);
' And of course, bank loans can be very difficult to get because they're limited by your balance sheet.How Do You Start the Factoring Process?
The factoring process can be very simple to set up. The customer will be asked to complete a short application form, and may be required to follow up with other reports and documents.
Recourse and Non Recourse Factoring: What's the Difference?
' With Recourse factoring the client is ultimately responsibility for the payment of the invoice; whereas
' With Non Recourse factoring, the factoring company accepts responsibility for the risk of collecting the invoice.It's important to note that some factoring companies over offer both types of factoring - recourse and non recourse.
What Are the Contract Terms and Fees Applicable with Factoring?
There are different fee structures with different factoring companies: some factors charge an overall factoring fee which is determined by the creditworthiness of your customers and the monthly volume of invoices; while others charge additional fees to cover shipping, money transfers, and other costs associated with doing business. Before signing with any factoring company make sure you understand the fees and terms applicable to your contract. Also note that most factoring contacts are renewed annually.
Do I Need Credit Insurance on Debtors?
Insurance is not typically required, but in specific circumstances it may be.
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Oilfield Services Factoring Services
Running a company in the oilfield services industry is no easy business, especially with payrolls to meet, equipment to purchase and deadlines that must be met. The sheer complexity of combining the geological research and modeling, imaging and exploration and finally the drilling to see whether oil is really present can take a lot of investment before any payoff can be seen.
For those who own a Frac Sand Hauler for example, the efforts that must be put in to start such as business can be considerable. But arguably the biggest challenge is paying the expenses as the invoices come in. A Frac Sand Hauler often has expenses that must be met immediately, but their invoices can take up to 60 days before they see the money.
What follows is an interview with Ray McClerand, a man who owns a Frac Sand Hauler business and ran into the same difficulties that many new companies of his type face. How Ray overcome some of the challenges in paying his bills through oil service factoring are explained in the interview.
"Welcome Ray, I'd like to know first why you decided to start up a Frac Sand Hauler company and how you prepared for the challenges it created."
Ray McClerand (RM): "I've been in the oil business for the past 15 years or so working on different jobs from roughneck to foreman to deskwork for different companies. A few years ago I saw the potential of having a Frac Sand Hauler business in this area and got together with a couple of partners to create a company. We sat down, went over the details and decided that this would be a real good time to build a business that was serving a particular need in this industry."
"So, I take it you created a business plan and took out the appropriate loans in order to purchase the equipment and hire the personnel necessary to get your company started?"
RM: "Exactly. Because I had been around this business for a while, I understood what was needed in terms of personnel and equipment. Plus, I had some contacts with others in the business that needed the type of services that a Frac Sand Hauler provides, so I felt that there was some real potential to make a profitable business work."
"How did it go over the first six months or so?"
RM: "At first, we were really thriving as my contacts had lined up some business my way. Our loans covered the first six months or so of operations and we were doing quite well with the business we had. My partners and I were certainly happy and everything was going good when something really strange happened."
"Could you elaborate on what you mean by "strange"?
RM: "Yes, after the first five months or so I started getting requests to have our company work with several other businesses in the area. This would mean having to expand our company through buying new equipment and hiring more people. But we did not have the cash on hand to make such a move. We were getting invoices from the businesses that we worked with, but it was taking up to 2 full months before we actually got the cash."
"So, you were making enough money to expand, but you didn't have it on hand because of the invoice system?"
RM: "You got it. Add to that our initial money from the loan was running out and we needed to start paying it back as well. I knew that if we didn't expand and accept the new business that others would step in and we would lose that money. So, we were in a real pickle until I heard about oil service factoring companies."
"Tell us a bit about oil service factoring and how it helped you out?"
RM: "Well, one of my partners had heard about factoring companies, so we checked it out and decided to go with one that was best suited for our needs. A factoring company buys our invoices with cash so we have money on hand to pay our bills and do what we need accomplished immediately. The factoring company then collects the money from the invoices when they become due. It's really been a win-win for what we do."
"That's interesting. I wonder if you could you explain a little further just how factoring has helped your company?"
RM: "Sure, instead of having to wait up to 60 days before we could collect on the invoices, we were able to have the cash on hand immediately to purchase some new equipment and hire some more people to expand our business. This meant that we could accept the new offers that other businesses were providing for us and not having to pass. I cannot say enough about how factoring really benefitted us when it came to expanding our business."
"So, it seems like factoring really paid off for you. Do you still use factoring today?"
RM: "Yes we do. Although for the most part we still cash our own invoices, whenever we need money quickly so we can buy some new equipment or expand our business a little further, we go back to the factoring company and cash in our upcoming invoices. It really has worked wonders for our company."
"Tell me, what would have happened if factoring was not an option?"
RM: Frankly, I don't know how we could be in the position we are today without factoring. In this business, you have to take advantage of new opportunities quickly because there are other companies out there who will step in if you don't. Basically, I don't think we would be anywhere near the company we are today if it had not been for factoring.
There is little doubt that Ray's company would not be where it was without oil service factoring that allowed him to expand his company when he needed. For those in the oil industry, having your invoices cashed immediately by factoring companies allows greater flexibility so you can grow your business a lot more quickly and take advantage of opportunities.
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