Cliff Abbott is out right now, so we’re offering a rerun of this informative story, originally published in June 2021.
When it comes to running your own trucking business, being a good driver is not enough. It takes more than driving skills to run a business profitably. Successful owners know the different tasks necessary to keep the business running smoothly. They also know their limits.
For example, some owner-operators perform all maintenance on their equipment. Everything from oil changes to engine rebuilds become DIY homeowner projects. Others, however, leave the stripping to the professionals – or they handle the grease and oil but take any projects that require more knowledge or equipment to a local shop.
When it comes to a trucking company’s cash flow, the factors could be thought of as “monetary mechanisms”. They understand billing and collection duties and can help truck drivers stay focused on customer service by taking care of some of the business tasks that the driver may not be comfortable with or have time to deal with. ‘to occupy.
It doesn’t matter how good the shipping service is if the trucker doesn’t get paid for it. After delivery, the factor is responsible for invoicing the customer and collecting payment. It may seem like an easy task, but owners on the road can’t always find the time to fill out an invoice and send it to the customer.
And there’s more.
Each open invoice must be followed up to ensure payment is received. After a while, another invoice should be sent, or the customer should call, or both. If the customer still does not pay, collection actions may be necessary. There can be a lot of things to follow while performing driver duties.
Even when the customer pays, it still takes time. Many companies operate on a 30-day payment cycle, which means the driver waits a month before receiving payment. Others may have a 45 or 60 day cycle, which makes the wait even longer. Then there are those who aren’t very good at keeping bills paid. They can lose bills, miss payments, and lead to additional collection efforts.
Postmen don’t just keep track of it all; they can also help with waiting. This is because most factors advance payment to the trucking company. Some pay within hours of delivery, allowing the money to flow through the trucking business. The postman expects payment, not the trucker.
When considering a factoring service, when and how payments are made is an important detail. Options may include direct deposit to the trucker’s bank account, allocating funds to a fuel card or prepaid debit card, or even mailing a check. Regarding payment terms, most postmen are able to pay upon receipt of a photo of the documents. Those that require faxing or sending documents are late.
If the customer never pays, the trucker may have to repay the advanced funds, but there’s a choice here too. Letter carriers often offer “recourse” or “non-recourse” services. In non-recourse agreements, the factor takes the loss if the customer does not pay.
Factoring service fees vary between companies offering the service and are an important consideration when choosing a factor. In most cases, the factor simply keeps a percentage of the invoiced amount, or a flat fee plus a percentage. Fees increase if the agreement is for non-recourse billing, because the factor assumes a higher risk.
Factors can also help the trucker decide which customers to accept. A good freight rate may sound attractive, but if it’s from a shipper with a poor payment history, the deal might not be as good. Factors can often help identify senders with poor payment history, bad credit, and more. They can advise drivers on which customers to avoid, which ones take a long time to pay, etc.
In cases where a shipper has not paid in the past, the postman may simply refuse to advance funds based on the load; this action protects both the trucker and the postman.
It is important to ask the factor if they allow “one-time” factoring. Certain factors require the trucking company to use its services for all the loads it hauls. However, some trucking companies have certain customers who are very willing to pay on time. In these cases, the owner may wish to deal directly with the customer, thereby avoiding the extra step and expense of having a letter carrier involved. They might prefer to use the postman for shipments from new or occasional shippers with whom they have not established a relationship.
Ancillary services is another area to ask a prospective postman about. Most factoring companies offer additional services, either directly or through partnerships with other companies. Free credit checks are one such service; fuel cards are another.
Some owner-operators carry large sums of cash to buy fuel, while others use credit cards that charge high interest rates if the bill is not paid by the due date. Factoring services can offer fuel cards with lower fees and no interest, saving money and reducing business debt. In some cases, fuel cards come with reduced prices on fuel, oil, tires and other items and services.
Certain factors can also help meet emergency cash needs. Expensive repairs, such as rebuilding an engine, can sideline a trucking company if the owner cannot finance the work. Some drivers turn to predatory lenders who offer quick cash, sometimes within a day. Often these lenders charge exorbitant fees as well as high interest rates. Some lenders insist on having access to the business bank account so that they can make withdrawals without the intervention of the owner.
Factors can provide low-interest or no-interest solutions to help owners get the business back up and running. Others partner with companies that help run programs to keep the business viable.
Anyone doing business with a factor should read the agreement documents carefully. Certain factors impose fees for certain actions, including fees for terminating the agreement. It’s best to understand all rates and fees early on in the relationship.
Factors can smooth the cash flow of trucking companies, allowing the owner to focus on the freight transportation business. Factors can also help owner-operators make sound business decisions and can help them when things go wrong.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he has been an instructor and trainer and has managed safety and recruiting operations for several carriers. Never losing his love of the road, Cliff has written a book and hundreds of songs and written for The Trucker for over a decade.