Whenever you compare two items, there is a tendency to point out the differences rather than the similarities. For instance in comparing apples and oranges, one is red and one is orange, but they are both edible fruit.
A line of credit and factoring are also very different, but both are sought for the same purpose: to quickly provide working capital to meet immediate cash demands. The telling differences between these two financial vehicles are like night and day.
A line of credit is usually found in a banking system and based on an excellent history of business of at least two or three years. More often than not, the line or loan document is secured by hard assets such as equipment, vehicles and inventory. In the event of a business downturn, the bank may have liens on everything listed in the documents, including any cash assets that may exist.
Between the application process and the funding, you could easily wait 2 or 3 weeks for the different committees to look over your finances and make recommendations about your credit worthiness which influences the interest rate you will be charged. The line itself is usually a variable rate, prime rate plus a few points and generally established for a fixed amount of credit. In the event you need more cash for unexpected expenses, you would have to renegotiate for more money and wait again for re-approval. After the lengthy approval process, there are fees, filings documents and don’t forget, there are monthly payments based on the loaned amount.
Factoring is also a financial lending instrument, but has much less stringent loan process. For starters, even if you have a less-than-stellar credit history or have just started your business, as long as you haul for credit-worthy customers, chances are you will be approved to factor your invoices. One of the greatest benefits to factoring is with an improved cash flow, you can actually raise your credit rating.
The factoring rate is fixed, not variable and includes protective non-recourse program that shields the carrier in the event their customer goes bankrupt and leaves invoices unpaid. There are a variety of customized programs that are simple to understand and easy to budget for. Best of all, there are no monthly payments, minimums or volume requirements so no matter how many trucks or companies you are hauling for, you know exactly what it will cost to factor your invoices.
Another huge plus for factoring is the approval process is quick, usually within minutes you can be approved to factor your invoices and receive funds the next day. Not only that, but there is no additional approval process required as your business grows, so there is never a delay in your cash flow. When you need more cash, a carrier can simply factor more invoices.
Factoring at Freight Capital also delivers a bounty of helpful cost-savings programs including discount fuel, overnight mail service, bypass transponders and load matching along with an income-producing refer-a-friend program. We are more closely invested in a carrier’s success so Freight Capital works very hard to insure rapid payments with instant credit checking.
Each Carrier’s credit situation is different, but in the present economy, lines of credit are being cut or no longer available. Factoring delivers a reasonable, low-cost alternative that any carrier can use with complete confidence that it is a smart financial decision.
