Most delivery service companies have to offer their customers up to 45 days to pay an invoice. This is a common business practice in the industry and delivery service companies have to offer payment terms if they wish to remain competitive – otherwise they could lose customers to the competition. Unfortunately, not every company is equipped to offer long payment terms. Most delivery businesses have regular expenses that have to be met such as fuel, equipment, and payroll. Delivery companies usually pay these expenses out of their own cash reserves, and then replenish their reserves when customers pay their invoices. The problem with this strategy is that it will limit growth, since your ability to grow will be determined by the size of the cash reserve. And if this situation is that managed correctly your delivery service company could also run into cash flow problems.

One way to correct this problem is to increase your cash reserve by adding capital to the company. If you don’t have any investors or are low on capital, another alternative is to complement your cash reserve using business financing. This increases your availability of funds to ensure that you always have cash on hand to meet expenses. There is one catch – qualifying for business financing can be very difficult. Most lending institutions have very strict criteria and require substantial collateral. In reality, few delivery service companies can meet these requirements and qualify for a business loan. However, a business loan is not always the best solution for this type of cash flow problem. For many companies, the better solution is to accelerate their revenues using invoice financing.

Invoice financing provides an advance on slow paying invoices. In effect, it accelerates the revenues that are tied to slow paying invoices, providing the liquidity that your company needs to meet its operational expenses. More importantly, it can also provide financial stability and therefore enable you to take on new customers without worrying about their slow payment habits. Invoice financing transactions are structured using a financial intermediary that funds your invoices and gives you an advance for them. Advances range from 80% to 90% and are based on a number of criteria. The transaction is settled once your customer pays the invoice in full, at which time you get the remaining 10% to 20% (less the financing fee).

Having corporate customers with solid commercial credit is very important if you want to qualify for an invoice financing line. This is because your customers credit and their ability to pay their invoices acts as collateral for the transaction. Additionally, your delivery service company should also meet the following criteria:

• It should only invoice for accepted deliveries
• It should not be encumbered by legal or tax problems
• Its invoices should be free and clear of liens

An important advantage of invoice financing over conventional business loans is that the line is dynamic and will grow with your business. Most lines are structured to automatically increase as your sales grow, as long as your customers meet the financing criteria. This makes invoice financing an ideal source of funding for growing delivery service companies that have cash flow problems due to slow paying shippers and commercial customers.

Most companies in the freight brokerage industry operate on a very tight cash flow. On one hand, freight brokerages must pay their truckers and drivers on a regular basis. This is important because most reliable drivers and trucking companies will demand quick payments. On the other hand,  shippers always ask for extended payment terms. Offering them 30 to 60 days to pay an invoice is common in the industry. This leaves the freight broker in the middle of the transaction, having to pay drivers out of his own capital while waiting for customer payments. And if this situation is not managed correctly, it can easily create a serious cash flow problem.

One way to solve this problem is to use business financing as a stop gap solution to pay your drivers while waiting for your shippers to pay their invoices. Unfortunately, getting business financing can be very difficult. Most institutions have very strict lending standards and will only provide funding to brokers that have solid income statements, balance sheets with plenty of assets and a long track record of profitability Unfortunately, few freight brokers meet this criteria, putting business loans out of their reach. However, a business loan is not the only – or the best – way to solve this problem. For many companies, a better solution is to use invoice financing.

Invoice financing solves this problem by accelerating the funds that are due from your customers. This provides the needed working capital to help you meet expenses – and more importantly – to help you grow with confidence. Your customers do not need to pay any sooner. Rather, a financial intermediary advances funds using your invoices as collateral. The transactions settle once your customers pay in full, on their usual schedule.

Qualifying for invoice financing is comparatively easy. The most important requirement is that your shippers must have good commercial credit. This is critical because the whole transaction is based on the customers ability to pay their invoices (i.e. their credit worthiness). Additionally, your company must also:

• Invoice only for delivered loads
• Have no legal or tax encumbrances
• Have invoices that are free of liens
• Be managed by reputable and knowledgeable individuals

Most transportation companies run into cash flow problems when they start offering 30-day payment terms to customers without having the necessary cash reserves. This can lead into serious cash flow problems that jeopardize the trucking company’s ability to pay drivers, fuel and other critical expenses. At best, it prevents you from taking on new loads. At worst, it could send your transportation company into a financial tailspin. Of course, the easy way to fix this is to use business financing to cover company expenses while waiting for customers to pay. For many, this is easier said than done.

Getting a business loan in the current environment can be very difficult. Most financial institutions will demand spotless financial statements – even a blemish can get your application declined. They will also demand substantial collateral – enough to cover for the business loan. Lastly, they will also want to see a track record that shows many years of successful and growing operations. The reality is that few growing transportation companies will be able to meet this criteria. However, there is an option that has been gaining traction as a way to finance growing transportation companies – it’s called invoice financing.

Invoice financing accelerates the revenues that are tied to your slow paying invoices. It provides the working capital your transportation company needs to pay operating expenses. Perhaps more importantly – it helps you take on new customers while minimizing the worries associated with slow pays. Most invoice financing transactions can advance about 90% of your outstanding invoices. The remaining 10%, less fees, is rebated once your customers pay on their normal schedule.

The most important requirement to qualify for invoice financing is to have brokers and shippers with good commercial credit. Aside from that, your company should also meet this criteria:

• Have unencumbered invoices/freight bills
• Be free of serious legal and tax problems
• Invoice for delivered loads
• Be owned and managed by experienced and reputable individuals

The most important advantage of invoice financing lines over business loans is their flexibility – invoice financing lines with increase as your sales grow. This makes them a great solution for trucking companies that have working capital problems due to slow paying customers.

Finding financing for a freight brokerage can be pretty difficult. Most freight brokerages don’t have substantial assets in the common use of the term (real estate, equipment, etc). As a matter of fact, their biggest asset is the knowledge on how to connect shippers with the right transportation carriers. This can be a barrier to obtaining conventional business financing because most institutions will not offer a business loan to a company with few hard assets. However, business loans are not the only solution, or necessarily the best financing solution for freight brokerages.

Most freight brokerages have cash flow problems because they need to pay shippers quickly, but clients pay their invoices slowly. One way to address this problem is to use invoice financing.  Invoice financing solves this problem by advancing funds against your slow paying freight bills. This provides the freight brokerage with the cash flow they need to pay drivers and other expenses. The transaction is ultimately settled once the shipper pays for the bill. The financing company charges a small fee for this service.

One advantage of invoice financing is that it’s easy to qualify for it. The biggest requirement is to work with quality shippers. Additionally, your company must be free of legal and tax problems.