Lesson 4: Top Three Industries that Use Invoice Factoring

Factoring receivables is the preferred financing option for a number of business sectors, notably freight and transportation, oil and gas, and staffing. Though factoring is used by other industries, these sectors represent a large percentage of factoring companies’ clients. While the reasons they choose factoring over other financing options may vary, the common threads are:

  • Fast Financing Factoring services enable businesses to get paid in 24 hours (in some instances). For these sectors, getting paid quickly is essential for their business.
  • Jagged Business Cycle These sectors tend to work in a feast-or-famine pace where business might be slow for a period and then it will ramp up dramatically. To maintain cash flow, these companies can obtain large cash infusions from invoice factoring.
  • Routine Slow Payments These sectors are plagued by slow, late or non-payment issues. This late payment pattern can wreak havoc by causing significant cash flow problems. Factoring bridges this payment gap.
  • Accessibility Whether it’s because they are high risk, have low margins or are deemed “unestablished,” these sectors may not meet business loan qualifications, and that’s ok. Banks are lending less, and many companies find it difficult to qualify.

Let’s take a look at the specifics of each industry to learn more about why invoice factoring is a preferred choice.

The Transportation Industry Heavily Relies on Freight Factoring

Freight invoice factoring is the bread-and-butter of factoring companies; some specialize only in transportation. With high operational costs, demanding shippers, regular late or non-payments, and slim margins, those in the transportation industry depend on factoring to keep the wheels turning.

Freight Factoring Enables Transportation Companies to:

  • Make use of invoice factoring-funded gas cards so that truckers never have to park longer than necessary to refuel.
  • Cover the costs of drivers’ payroll as well as hire new drivers.
  • Take on additional shippers, haul larger loads, or add new routes to existing business.
  • Expand a fleet of trucks or keep existing trucks well maintained.
  • Get paid no matter what! With non-recourse factoring, trucking companies get paid even if the shipper fails. The factoring company writes off the loss instead.

Oil and Gas Financing Pumps Cash into This Surging Sector

With the discovery of shale oil and gas deposits deep underground across the U.S. and Canada, the oil and gas sector is booming. Though this energy sector can be lucrative, it is also fraught with risk and uncertainty. For this reason, many banks are reluctant to provide oil and gas loans. Though the payouts down the road may be considerable, financing oil and gas projects require a substantial up-front investment. As such, oil and gas factoring has become a popular option.

Oil and Gas Factoring Facilitates These Energy Companies to:

  • Obtain large amounts of up-front capital to pay for drilling equipment, pumps, pipelines and more.
  • Hire and cover payroll of new and existing workers from the many drillers and roustabouts to the costly engineers and technical managers.
  • Bid on jobs as they open up with confidence knowing they’ll have access to needed capital.
  • Improve their business cash flow by providing stability in an uncertain environment.
  • Get oil and gas financing in a matter of days, not weeks, without the hassle and headache of a credit check.

By financing oil and gas projects, factoring companies accept the inherent risks – and rewards – of partnering with this industry. Oil and gas companies can gain peace of mind by working with financing companies, who also don’t back down from risk.

Advanced Payroll Funding Bolsters Staffing, Employment Agencies

Staffing agencies have grown rapidly in recent years due to the economic downturn and changing employment trends. With more employers adopting a try-before-you-buy approach, many are hiring contingent workers before committing to full-timers. Staffing firms have popped up all over to meet this rising demand. Unhampered rapid growth can cause its own set of problems, such as a lack of capital to meet payroll or to recruit top talent.

Staffing Factoring Can Help Employment Agencies to:

  • Meet their payroll obligations – a staffing agency that cannot fulfill its payroll is unlikely to survive for long. Payroll funding is the largest expense for employment agencies.
  • Source, hire and retain top talent by offering competitive compensation packages. Medical staffing factoring can cover the costs of high-wage health care professionals.
  • Better advertise and promote their business in this competitive landscape.
  • Move into higher-margin sectors or make grounds in new territories.
  • Secure the capital that is needed for bulk sourcing and hiring, which is commonly done for seasonal jobs.

Payroll financing is a major problem for many in the staffing industry, particularly unestablished agencies. Payroll funding companies have the financial depth and capacity to provide the needed capital to these fast-growing agencies. In summary, just about any sector can benefit from invoice factoring services but transportation, oil and gas and staffing are some industries that routinely do. Businesses that are seasonal, growing too rapidly, high-risk, low-profit,

In summary, just about any sector can benefit from invoice factoring services but transportation, oil and gas and staffing are some industries that routinely do. Businesses that are seasonal, growing too rapidly, high-risk, low-profit, unestablished, or struggling with poor cash flow are good contenders for factoring receivables.

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