Lack of working capital and long payment terms are a major concern for the transport industry. Factoring may be the answer to this problem. Apart from financing current activities, this service supports entrepreneurs in financial risk management. Monitoring of payments and business intelligence allow to avoid the occurrence of financial congestion, as well as receivables defined as difficult to collect.

In transport, claims become time-barred after one year

Late payment of receivables is a problem in most industries. As macroeconomic conditions improve, the situation periodically improves. However, entrepreneurs are still struggling for the customer not only with price, but also with the extension of payment terms. Despite granting trade credit to customers, they often wait for weeks for cash to arrive. Recovery of receivables through the courts is also a lengthy process. According to the World Bank's "Doing Business" report, the average waiting period for payment from the moment of filing a lawsuit is 685 days in our country.

In transport, the situation is even more complicated. The sluggishness of transport companies' recipients results from the high competitiveness on the market of these services. Companies know that they can dictate conditions to carriers, because at any time they will find a company ready to take over the service of their transport. Moreover, according to Polish law, claims for transport services become time-barred already after a year. For this reason, passivity in pursuing the claims is particularly inadvisable, as it may mean irretrievable loss of cash.

How factoring works

Factoring as prevention of congestion

Factoring is often offered to carriers as a tool for financing non-matured receivables, allowing them to receive cash for invoices issued before the due date. It often has a preventive function, preventing payment congestion. Such a role is fulfilled by monitoring payments, which is taken over by the financing institution towards the customers of the factoring client. It consists in the fact that the factoring company controls the timeliness of payments, and in case of delays, it monitors the payments. Payment monitoring has a disciplining effect on the recipients. The assignment of the difficult obligation to control payments also helps to avoid tensions between the service provider and the customer. If the payment is not received, it is not the carrier (bidder) who is asked to pay, but an external entity. Ongoing financial control is very important in the transport industry because of the short limitation period for claims.

A quick reaction is the success of the collection

In the case of non-payment, directing receivables for collection at an early stage gives a high probability of fast payment collection. Factor provides professional legal services for the transaction, which in the perspective significantly affects the effectiveness of recovery of overdue receivables. Some factoring companies also offer the so-called soft debt collection, and some have professional debt collectors within their structures. In this case, the collection order is cheaper than in a standard market offer. A similar role as monitoring, allowing to avoid risk in commercial transactions, is fulfilled by economic intelligence. The role of the financing institution, even before the financing is granted to the clients of the factoring client, excludes from financing clients with whom cooperation would involve the risk of insolvency. Implementation of a financial solution such as factoring, in addition to access to working capital, in high-risk industries can significantly support managers in managing the financial risks of companies.