One industry that is improving, along with the economy, is transportation. Many existing transportation carriers and freight brokers are seeing their revenues increase as the industry picks up. The improved economic outlook and the condition of the industry have also prompted individuals with industry experience to start new freight brokerages.

Although running a freight brokerage can be very profitable, the business is very cash flow intensive. You need to keep your drivers happy, which means they need to be paid quickly. In the meantime, your large corporate customers will demand that you give them net 30 payment terms. In other words, your drivers want you to pay them quickly and your shippers want to pay you slowly. As a freight broker, you are expected to manage that payment discrepancy and keep all parties happy.

Few startup or growing brokers can afford to wait 30 days to get paid by their clients. Simply, they don’t have the funds to cover the operating expenses of the business. This is a big limitation for them and prevents them from growing the business and capitalizing on opportunities. To complicate matters, getting business financing for a freight brokerage is very difficult. Few banks will provide business loans to the industry in part because they don’t have hard assets (i.e. real estate) to use as collateral. Either way, a business loan is no necessarily the best solution either.

A better alternative for many freight brokers that have cash flow problems is to use freight factoring. This solution is designed specifically to help companies that have clients that pay in 30 days but need the funds sooner. Freight bill factoring provides a cash advance on the net 30 invoices, providing the necessary funding to pay drivers and other business expenses in a timely fashion.

One of the most attractive features of freight factoring is that most freight brokers can qualify for it – even startups. This is because factoring companies consider your freight bills from strong shippers to be your best collateral, and they are usually happy to advance funds against them. This means that brokers with few assets except a strong roster of shipping clients can usually qualify. Aside from having strong shippers, most factoring companies will only work with freight brokerages that have no lawsuits, judgments or liens.

Freight bill factoring is an ideal solution for freight brokers and transportation carriers who can’t afford to wait 30 days or more to get paid by their clients.

Although the economy still has challenges, most experts agree that conditions are improving. Unfortunately, this does not mean that getting conventional business financing will be easier. The sad truth is that many lending institutions are still licking their wounds from the excesses of the subprime credit bubble and few are willing to lend to companies – unless they have substantial collateral. Even institutions that are providing business loans to small businesses are focusing only on the bigger small businesses. So, where does this leave small and new businesses? Not in a very good place.

Small companies have had to improvise to survive the crisis. Not only bootstrapping their operations, but also looking for less conventional sources of funding. One of these less conventional sources of financing is invoice factoring. Although factoring has been available for decades, it’s gained mainstream notoriety during the recession because it was one of the only sources of funding available to small and new companies.

One of the biggest challenges that small businesses are dealing with are slow paying commercial customers. In the past, commercial clients paid their invoices in 15 to 30 days. Nowadays it tales closer to 45 or even 60 days to get paid. Few small businesses, let alone startups, have the capital reserves to wait that long to be paid. Invoice factoring helps these companies by providing them with a funding advance against their invoices/receivables.

Factoring reduces the time to get paid dramatically, freeing up your cash flow and allowing you to meet existing business demand – or deploy it to pursue new sales opportunities. Most small companies use factoring as a stepping stone to grow the business and eventually qualify for more conventional financing.

As opposed to most conventional financing alternatives, qualifying for accounts receivable factoring is relatively easy. The most important requirement is that you do business with reliable credit worthy companies. Aside from that, your company needs to be free of legal problems.

Factoring is rapidly becoming a common way to finance a business, especially now that business loans are difficult to get. It is a good business financing tool that can work very well for growing companies – or companies that have cash flow problems.

Invoice factoring is a specialized form of financing that is designed to help companies that have one very specific problem – they sell to their clients on net 30 to net 60 terms but can’t afford to wait to get paid. Businesses find themselves with this challenge due to a number of reasons but the two most common reasons are poor capitalization or fast growth. As a matter of fact, fast growth is the main reason companies chose to do business with a factoring company. For example, a small company gets a very large order from a client. They can deliver it but can’t afford to wait 30 days to get paid because they have their own expenses to cover. One option is to turn the sale away. Another one is to factor it.

So how does factoring help a company that can’t wait 30 to 60 days to get paid? Simple – it provides a cash advance against those invoices. The advance enables the client to cover business expenses without worrying about the timing of client payments. The transaction is settled once the end customer pays the invoice in full.

Most factoring transactions are structured as an invoice purchase rather than a business loan. The factoring company buys the invoice from the client and pays for it in two installments. The first installment is called the advance and can be anywhere from 70% to 90% of the invoice value. The remaining part (10% to 30% of the invoice) is not advanced and used as a reserve to cover factoring fees and invoice discrepancies. The second installment, called the rebate, is provided once the invoice is paid in full. The amount rebated is usually the reserve, less any fees and payment discrepancies.

One of the biggest advantages of factoring is that is available to companies that have no hard assets (such as real estate) and little or no credit history. This makes it an ideal funding solution for small and medium sized companies that can’t afford to wait up to 45 days to get paid by their clients.