Options are growing to help carriers and brokers get paid quicker
Invoice factoring has been around for decades – according to Steven Hausman, president & CEO of Triumph Business Capital – perhaps even thousands of years. No matter how long it’s been around, factoring has become an increasingly popular option for third-party logistics (3PLs) companies and freight carriers to manage cash flow.
In any shipper-broker-carrier arrangement, cash flow is an issue. Carriers want to be paid quickly to fund key items such as fuel and driver pay. Brokers want to pay carriers to build up a trusted relationship which ensures capacity when needed. Shippers, though, will try to push broker payments out 30, 60, 90 days or more.
That dynamic caused many carriers – especially smaller fleets and owner-operators – to begin factoring their bills. A factor buys the freight bill from the carrier for cash – at a discount. The carrier doesn’t receive full payment, but it does receive money sooner. The factor then collects the debt from the broker or shipper. Brokers use factors in a similar way, to pay carriers quicker to ensure needed capacity down the road.
Timothy Brady, a small business trucking expert, writes that fleets can utilize several tactics to get paid, including offering discounts for shippers who pay early or building an interest charge into rates.
Hausman says that there is some anecdotal evidence that as many as 80% of carrier payments are handled by factoring companies.