Logistics Companies South Africa
Transport and Logistics Companies in South Africa – Freight Factoring
Most start-up transport and logistics companies in South Africa fail to succeed within the first couple years of operation. This is mainly due to how freight invoicing works within this industry where payments for transport and logistics services are only paid in arrears. This does not mean upon the delivery of the goods but is more often than not only paid 30 days after delivery to the destination.
This means that the transport and logistics companies in South Africa need to cover all their operational expenses in advance of transporting any freight. This includes the initial outlay for purchasing fleet vehicles as well as finding suitable warehousing and storage facilities. Over and above this the regular maintenance of the vehicles, fuel costs, consumables and employees salaries and wages need to be taken into account before the company receives any money from their clients.
This often means that there is a lag between when payment is made and how much capital is available to take care of all the expenses in the meantime. Only the largest and longest running transport and logistics companies in South Africa have the experience, capital and know how to deal with this lag time and operate as a successful business. But how do small, newer transport companies then survive long enough to become sustainable.
The most obvious solution would be for the proposed company to opt for a loan from a bank to have the capital to operate before receiving payment for services rendered. However, this is not always the best choice as interest rates and other banking fees need to be factored in. This often means that start-up transport and logistics companies need to pass this expense on to their clients or have to absorb the extra costs on their own which could end up bankrupting them.
Freight invoice factoring is perhaps the best way to ensure that new logistics companies in South Africa become successful. This is a simple process whereby a freight bill is raised upon delivery of goods to a customer. The freight factoring provider then pays somewhere between 90-95% of the freight bill to the transport company and then recovers the full amount from the client. It basically means that the transport company gets and advance on the cost of delivering goods to a customer and bridges the gap between delivery costs and actual receipt of payment from the client.