Why Do Carriers & Brokers Factor?
MOTIVATION FOR INVOICE FACTORING
Carriers and Freight Brokers choose to factor primarily because they are unable to currently meet the cash demands of their business. They may continue to factor even after solving their cash flow problems because they value the factoring company’s backroom services.
HOW ARE CASH FLOW ISSUES CREATED?
Start-up Carriers & Brokers
- Some start-up companies are under-capitalized from the start and lack sufficient cash to meet and stay current with their payables right from the start.
- Some use up their initial cash reserves in staffing, opening their office and investing in activities and materials to generate business.
Existing Carriers & Brokers
- Some experience Rapid Growth creating an increase in current A/P and A/R resulting in a decrease in available cash.
- Some do business with Slow Paying Customers that limit the conversion of A/R into spendable cash, adding to the A/R covering A/P issues.
- Some experience Losses from Non-Paying Accounts which uses up cash reserves.
- Some are affected by Economic or Business Downturns creating the loss of business and revenue faster than expenses can be reduced.
WHAT DO THEY WANT FROM A FACTOR?
- As much cash as they can access at the lowest cost with as little effort or inconvenience as possible
- A friendly system of transacting business with their Factor
- Other services or benefits adding to the value of the relationship