Opinion: Factoring Helps, Not Hurts, Trucking Industry

By John Downing

Executive Vice President

Freight Capital

This Opinion piece appears in the Nov. 17 print edition of Transport Topics. Click here to subscribe today.

This is a response to the article “Cash-Strapped Carriers Resort to Quick Pay Plans, Factoring” (10-13, p. 55). I would like to set the story straight.

There is a financial squeeze play going on in the trucking industry between the carrier that hauls the load and the shipper that pays the freight bill, while at the same time, bank lines of credit for truckers are being lowered or eliminated.

The challenge of any size trucking company is paying for fuel, payroll and repairs every day it is in business while waiting for payment for days, weeks or months. Because the trucking industry is the backbone of commerce in this country, there is simply no way that truckers or shippers can stop doing business.

Factoring is a safe financial service solution that helps truckers continue to haul freight, employ people and ultimately stay in business during these tough economic times. It also enables the carrier to accept higher-paying loads from shippers who may need the extended credit terms.

Not only does factoring speed up critical cash flow, but most top-tier factors offer many other necessary services such as collections, credit, account management, mitigation, fuel cards and other supportive programs.

Our company, for example, provides cash advances to trucking companies against creditworthy accounts receivable. This advance, up to 95% of the invoice, is paid to the trucking company within 24 hours of receiving the bills of lading. The small fee we earn is not collected until the invoice is paid from the originator, which could take 30, 60 or 90 days. When the invoice is paid, the factoring fee, as little as 0.5%, is assessed and the remainder or reserve of the invoice paid back to the trucker.

To explain factoring in a different way, consider each time you use your VISA card to buy a sandwich; the deli that has accepted your card has just factored its receivable. VISA will deposit the funds into the deli’s account that evening, charge the deli a 3% to 4% fee and then bill the consumer for the charge — waiting the 30 days or so for the consumer to pay his or her credit card bill.

We have literally hundreds of testimonials from truckers letting us know that factoring has helped them concentrate on hauling freight while we managed their receivables and facilitated collections. Funding takes place automatically every day and, with online access to account information, they can see the money going into their bank accounts and onto their fuel cards, safely and securely.

It relieves the small independent trucker from account management but provides real assistance and sophisticated reporting to the bigger fleets. Most of all, it provides a solid cash flow — the lifeblood of any industry.

Quick-pay plans initially are appealing to cash-strapped carriers, but they contain advance fees and processing costs on what is usually an already discounted load, creating a smaller and smaller payday.

Factoring, on the other hand, allows truckers to forgo “discounted” loads and focus on taking the best-paying loads they might not have considered, because many good-paying shippers and brokers do not offer a quick-pay solution.

We also offer professional credit and receivables support, including collection service and nonrecourse protection in the event the shipper goes bankrupt before paying his invoice. Because factoring is not a loan and does not create a debt for the trucker, it allows a trucking company to actually improve its credit rating, expand its business and, most important, accept more profitable routes.

Every trucking company is different, and the same goes for factoring companies. Look for a factoring provider that offers flexible, customized programs; knows and understands the trucking business; and has a good track record when it comes to spending as much time with carrier clients as they need to understand how their businesses can be maximized by finding good-paying loads for the lowest cost. Not every invoice requires factoring, so some truckers factor only the companies that are slow to pay.

At the end of the day, factoring can help take a trucker out of the pickle and literally ease the squeeze play between bills and payments. With bank lines of credit not available in the foreseeable future, factoring is a low-cost solution that provides a safe haven for the American trucker.

Based in Carlsbad, Calif., Freight Capital provides daily invoice funding along with professional credit and collection support to the trucking industry through customized factoring programs.