Accounts Receivable Financing For the Transport Industry

By: Kris Koonar

As a transport company owner you begin to feel like you have to juggle between hosts of issues, with considerable time taken up to look after the finance needs of the organization. Financing the growth of any transport company is a major challenge. When a transport company is new it is difficult to get finance from banks, as the credit ratings are not well developed. What is required for growth is more and more working capital. And if credit sales have created a situation of a low cash flow level then it becomes harder to meet daily cash requirements. In such a situation, accounts receivable financing is a very good financing option for the transport industry.

Transport companies require daily cash for certain undeniable expenses. They need to pay for fuel, wages of drivers, maintenance and other expenses, which need to be taken care of on the given day itself. If you want to grow your business you need to increase your fleet and as you increase your fleet your expenses increase. The trickier situation arises when you cannot avoid these payments beyond a certain time and you have customers who would not pay before 30-60 days. Bill collections are highly unpredictable. So what do you do in such situations? You avail of accounts receivable financing that financial organizations provide. And for that you have a good asset in hand; the accounts receivables.

Financing companies provide you with finance or a loan for which these accounts receivables are used as collateral. They provide you with advance, which is a percentage of the amount of the invoice. Though this sounds pretty similar to factoring, the difference lies in the fact that the amount is given as a loan with accounts receivable as collateral and the responsibility of collection rests with the transport company. The fees charged for these are less than those of the factoring services.

The advantage of availing of this type of finance is that you get the amount very quickly. Many companies now have an online system for submission of invoices electronically. These are verified and the agreed amount of cash advance is wired to you on the same day itself. Some organizations also use the fax-based system for submission. What are required are credit worthy commercial customers. It is thus critical to do business with reliable companies that pay in 30-60 days.

Another advantage is that as your transport company grows so does your line of credit. The finance companies provide finance to small, medium as well as big organizations. The maximum finance line is determined by the invoices provided by you and is tied directly to your monthly sales. All this leads to your business being properly organized and well managed. It proves to be cost effective and helps you grow your transport business steadily without losing any opportunity to grow because of lack of finance.

Accounts receivable thus provides you more flexibility and fluidity and efficiency in managing cash flow needs of your transport business. It may well be a good source even for the growth of your happiness and the success of your transport business.

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