Trucking Companies and Cash Flow: What are the Options?

Though often overlooked, the trucking industry is vitally important to the health of the US economy. Think about it: without truck drivers delivering goods, interstate commerce would grind to a screeching, tire-burning halt.

Unique Challenges

Despite the importance of trucking companies, the way the system is structured often leaves them in a shaky financial position. Truck companies submit invoices for services rendered, and then often wait 30-90 days for payment on the accounts receivables.

For a bigger company with large cash reserves, waiting to be paid would not be a problem. But for small to mid-size companies operating on a tight budget, it might not be an option. Expenses such as payroll and gas add up in the time between payment, and not paying your drivers is never a good business practice. Add to that rising fuel costs, delays due to traffic congestion, driver shortages and new regulations, and it is a recipe for financial hardship.

Therefore, trucking companies often have to turn to outside financing. The following are some options for trucking companies to consider:

Asset-Based Lending

Also known as factoring, this options refers to the process by which businesses sell their accounts receivables to a factoring company.  Approval for factoring is based on the creditworthiness of the trucking company’s customers.

At the time of the sale, the client gets 80-90% of the cash back immediately from the invoices. The remainder of the balance comes after customer repayment, less a percentage fee that typically ranges from 1-5%.

This option is best for B2B companies that cannot afford to wait for payment, and the cost is usually 4-5% monthly with an effective annual interest rate typically between 18-30%.

Bank Loans

Though hard to come by, bank loans are often the cheapest form of financing. The loan process involves an application and review of the company’s creditworthiness and financial history. Small companies especially tend to be turned down for loans, although exceptions do exist.

After approval, fund disbursement usually takes about 30-90 days to reach a trucking company’s bank account. This form of funding is best for trucking outfits with a great credit history and don’t need the money immediately.


Cash advances take place when a company receives an advance sum from a lender. The company pays the lender back with percentages of their monthly card receipts until the loan (plus a predetermined rate) is repaid. There are legal limits to the rates, and they cannot be changed retroactively. The benefit to cash advances is immediate cash- it is the fastest method for obtaining cash without going to a loan shark.

This financing method is best for trucking companies who need immediate cash for a short amount of time and have limited financing options. The cost is usually 20% and up.


A trucking company may choose to sell property, plant, and/or equipment, and simultaneously leases it back for cash.

It is best for trucking companies with valuable plant or equipment assets that are underutilized, and the cost is monthly lease payments plus the depreciation and tax burdens of equipment.

Choices, Choices

Every trucking company is unique, and it is up to them to find funding solutions that meet their individual needs. Being informed on all the options is the first step toward finding a suitable cash flow solution.

How to Factor Your Freight

Waiting to get paid for work you have already done is a pain, but waiting for money when you have bills to pay is a huge problem. Trucking companies in particular often face cash flow problems when invoices from loads go unpaid for long periods. The work is done, but the cash is often tied up in accounts receivable. For a large trucking company with consistent cash flow, this might not be a problem—but for small and medium sized companies, sometimes waiting to be paid is not an option.

Freight factoring is one alternative financing option for trucking companies that get rejected for a bank loan. Approval for factoring is based on the credit worthiness of the freight customers, not the company’s credit, and therefore is much more likely than with a bank. Factoring is also a flexible option that allows for same-day cash. Here are the steps to take when deciding to factor freight:

Do research: Only choose factors with knowledge of the industry. Not everybody has someone on the staff who has worked with the industry before, so be picky.

Don’t hurry: Plan in advance so you don’t feel obligated to factor invoices urgently. Doing so could result in getting caught in a contract that you don’t want, or making costly mistakes. Take your time and find the best fit for your individual needs. Some companies offer back-office billing services or one-time invoice factoring agreements. Figure out what is best for you.

Start the process: Contact the company and you will get placed with an account manager. They can help you navigate the process and start getting cash right away for your receivables.

For more information on freight factoring, see here.

How is the Sequester Impacting Staffing Services?

The first effects of sequestration are starting to be felt, and staffing agencies are feeling the ripples. Some in the recruiting industry are starting to see signs of agitation in the workforce market as companies begin to change their hiring strategies. According to the Washington Post, the current trend seems to be companies turning to staffing experts and wanting a “super multitasker” that can do the jobs of many. Many hiring managers also want to hire as soon as possible, because as the sequester drags on it could decrease the budget even more.

As more clients turn to staffing agencies, the agencies themselves may be in need of increased cash flow so they can accept more business. Factoring companies that specialize in the staffing industry should take heed, as they might see an increase in demand for staffing and payroll financing. Turmoil often leads to opportunity, and it’s those who take advantage of opportunity that come out on top.

2013 Online Factoring Workshop

Factoring professionals, do you have a few hours to spare a day between April 30th and May 2nd? Before you say no, keep in mind that you wouldn’t even have to leave your desk. The Commercial Finance Association (CFA) is hosting a three day virtual workshop on 2013 Factoring and Managing Client Risk.

Those who should attend include:

Existing or new employees of factoring companies

Those in operations, account executive and credit/underwriting roles that either want or broader understanding or a comprehensive refresher in general principles

Staff members in specialist (accounting, branding etc.) or new business roles that want a broader understanding

For those interested, sign up here. Continuing education is important for those who want to stay on top on trends and on top of the industry.

Some Call for Medical Billing Act

Medical billing is a complex process, and like anything that involves money and credit it is sometimes controversial. While no one likes getting a medical bill, but sometimes it is even worse than that and customers are left with ruined credit over procedures and charges they don’t even remember incurring. Credit advocate Call 12 for Action is currently investigating medical billing issues, and are pursuing legislation that would treat medical billing the same as credit card billing. Credit card billing has the The Fair Credit and Billing Act, a strong consumer protection law that gives customers rights when disputing bills.

A big problem with current medical billing is that unpaid bills are sometimes reported to credit agencies before they have a chance to be paid or while being processed by insurance. Therefore, a current bill that Call 12 for Action is backing is the Debt Responsibility Act, introduced by Senator Jeff Merkley, D-Ore, which would prohibit credit-reporting agencies from using paid or settled debts to determine credit ratings.

A reformed billing process might cause cash flow issues for medical providers, and that’s where factoring comes in. Medical factors solve cash flow issues for facilities that need it, and if the bill passes then medical providers might just need it.

For the full article, see Credit Advocates Calls for Medical-Billing Act

Navigating Client Relationships

In our last post, we talked about some ways to deal with problematic payers. In this one, we will be discussing how factors can keep their clients happy before it comes to that. The accounts receivable team at a factoring company is responsible for almost all the interaction with customers, including resolving issues and collecting payments from customers. They must strike a delicate balance between keeping customers happy and collecting on debts, or risk 1) getting walked over or 2) losing clients because of bad experiences. In an article on The Press Enterprise, author Sarah Cullins offers a few tips on how to achieve this balance.

Contact Person: From the onset of the business relationship, make sure the client knows exactly who to contact should problems arise. Have the account manager give them a quick introductory call to make sure everything is in order, too- a personal touch can go a long way.

Thank Yous: Simple thank you cards or emails for prompt payments can also be a nice touch. Don’t hesitate to call your clients and tell them how much you appreciate their business, or give them some free social media press. Great relationships are good business.

Phone Etiquette: It is crucial to be friendly on the phone, even when frustrated. Cooler heads always prevail so make sure your account managers keep this in mind. When it is necessary to collect past due payments or the like, the key is to be understanding and proactive rather than accusatory.

These tips can help a factoring company strike a balance between sales-y and firm, and keep great client relationships that could lead to coveted referrals.

Combatting Non-Payment

In a business like factoring where everything depends on invoices being paid, non- or slow-paying clients can have a big negative effect on operations. In an article on, Margaret Heffernan, CEO of InfoMation, offers a few tips on how to deal with customers  who won’t pay.

Schedule Payments: One way to make payment easier is to break the project up into small segments and have the customer pay along the way. Problems that arise early are easier to fix than those that arise later, and customers will feel more in control of their incurred costs.

Upfront Payment: If you are committing resources, then so should your customer. Don’t be afraid to ask for payment up front, and be honest about your company’s needs. Heffernan suggests putting money into an escrow account, but says it depends on the business and what they think would best suit their needs.

Discount for Upfront Payment: This option has the advantage of giving customers a reason to pay upfront where otherwise they may not. This may entice your customers to pay first, which could eliminate trouble down the road.

Conduct Research: While you can run credit checks, Heffernan suggests doing some primary research and asking about the client in and around their networks. A previous connection is bound to have an opinion one way or another about the potential client.

These are just a few ways to address payment problems before they happen, which of course is the best way to address any problem. The policies you put in place beforehand can save you headaches down the road.

Global Economy Fuels More Optimism than U.S. Economy

It’s good to hope for the best, as long as you don’t forget to expect the worst. According to the ABF Journal, the results of the Business Council Survey of CEOs indicate that top executives are more optimistic about the future of the global economy than that of the U.S economy. The vast majority of them believe that the global economy will grow at the same pace as 2012, while 60% expect that growth will quicken. Most expect conditions to improve the most in China, at 57% of respondents compared to 30% on the last survey.

The U.S. economy results showed that confidence is down because of factors such as the fiscal cliff deal, sequestration, and the long-term deficit issue. The article states that “only 14.5% of those surveyed believe that the fiscal cliff deal did anything to solve long-term problems. Eighty% of those surveyed do not believe that the agreement was a meaningful step to resolving the deficit issue, and 84% believe it relied too much on taxes and too little on spending reform.”

While it is good that CEOs are optimistic about global prospects, improving confidence and optimism at home is extremely important for moving the economy forward.

Factoring Increasing Overseas

The process of invoice factoring is becoming more and more popular around the globe as more people become aware of the potential benefits. According to an International Factoring Association article, demand for factoring is sky high in the country of Kazakhstan, the largest economy in Central Asia. It grew by nearly 200% in 2012 with transaction volumes estimated at $30 million USD.

Factoring in Kazakhstan

Factoring is relatively new to the Kazakhstan financial market, as it entered after the economic crisis there in 2009. Since then, the country has had one of the fastest growing economies in the world, and the factoring industry is growing at a rapid rate. Experts say that factoring is popular because commodity buyers and sellers and small-to-medium businesses can receive immediate payments from shipped goods, when normally they would have to wait. Because factoring is still in its infancy there, a main niche has not yet emerged. Six main factoring companies exist at the moment, and banks are starting to show more interest in the process.


Factoring is increasing throughout the world as more countries catch on. Factoring is now a trillion dollar industry and appears almost everywhere, and transactions have increased by the following amounts on the main continents since 2009:

Americas: 21%

Africa: 5%

Asia: 57%

Australia: 5%

Europe: 11%

It is clear that factoring is increasing on a global level, and that more markets are opening up worldwide. Now is a good time to be in the international factoring business, as there are untapped markets all over the world.