Even when we don’t talk about delays, payments in the transport and logistics industry are a very sensitive topic due to the extremely long payment terms. Carriers usually complain about the payment conditions proposed by freight forwarders or cargo owners. On the other hand, those who order transportation often wait 30, 45, 60, or even more days for payment from their clients.
Broadening the scope, we see that payment terms have long been more than just a pain point; they are a real nightmare for the entire European economy. Fresh estimates from early 2024 suggest that nearly half of invoices in the European Union are not paid on time (this refers to all sectors, not just T&L). This negative practice is so burdensome for small and medium enterprises that the European Parliament recently began drafting new payment regulations, aiming to introduce a 30-day limit across the EU (with the possibility of negotiating 60-day terms if explicitly stated in the contract).
It’s not hard to conclude how slow payments and reduced liquidity strongly impact the transport and logistics industry. Factoring is one of the financial instruments that can solve these problems.
What is Factoring?
Factoring is a financial service where a company sells its short-term receivables and immediately receives money in return, without waiting for the customer to fulfill their obligation. The factoring company takes over the receivable and charges a fee (commission) for this service.
What Advantages Does Factoring Offer to Logistics?
- Improved Liquidity: Logistics and transport companies using factoring services can immediately receive funds for their receivables. This helps improve cash flow and provides funds for operational costs such as fuel, vehicle maintenance, lease payments, or employee salaries.
- Increased Earnings: Greater liquidity indirectly means better earnings. Simply put: the faster money comes in, the faster it can be turned around – performing more services and earning more.
- Reduced Risk: By using factoring services, logisticians transfer the risk of non-payment or payment delays to the factoring company, thereby reducing their financial risk.
- Flexible Financing: Factoring is often more flexible than traditional bank loans, as these arrangements are based on the value of invoices rather than credit history or collateral. This can be particularly significant for small businesses or startups with limited or no access to traditional financing sources.
- Focus on Core Business: Like in any other business segment (and life), some things should be left to professionals! Factoring companies handle invoicing, collection, and receivables management, freeing up time and resources for logistics companies to focus on their core activities, such as transport and warehousing.
- Support for Growth: Purchasing electric vehicles, installing a solar roof on a facility, introducing a modern warehouse management system? With improved cash flow and reduced financial risk, logistics companies can seize all growth opportunities, whether it’s expanding their fleet, entering new markets, or investing in the latest technological solutions.
Why is Factoring Particularly Suitable for Logistics?
Although many advantages of factoring are identical for different industries, several specificities make it particularly suitable for logistics and transport companies:
- Seasonality: Cash flow in the T&L industry can be highly seasonal, with significant fluctuations in demand throughout the year. Factoring provides a flexible financing solution that can balance these fluctuations, ensuring logistics companies have access to funds at all times.
- High Invoice Volume: Logistics companies usually generate a large volume of invoices from multiple clients, which can create administrative burdens and payment delays. Factoring simplifies the invoicing and collection process.
- High Operational Cost Pressure: We’ve already mentioned fuel, and there are also increasingly expensive tolls, new environmental levies, etc. Factoring provides cash almost instantly.
- Many Different Clients: Logistics companies often work with various clients – from global corporations to small local businesses. Factoring companies conduct credit checks on clients and assume the risk of non-payment or delay.
Choosing the Right Partner
In the current environment, companies – especially transport ones – operate with fairly low margins that leave little room for maneuver. Therefore, every euro is significant. Moreover, in challenging circumstances, additional benefits such as fuel cards, databases, etc., that your factoring partner can provide, become even more important.
Invoitix offers the possibility of creating a personalized offer tailored to each client. With a highly digitalized service and the availability of a local Invoitix team that speaks your language, as well as additional benefits, it’s clear that Invoitix is a reliable partner you can count on.
