Cash flow – the life blood of a trucking operation – is under more pressure than ever as shippers continue to push out pay dates to their brokers, giving brokers limited options other than to do the same to their carrier partners.
That pressure is felt more acutely by the 80 to 85 percent of the trucking industry that doesn’t happen to be a major truckload or less-than-truckload (LTL) company. For carriers not part of that upper 15 percent, the answer has been to lean increasingly on factoring companies to purchase their invoices, for a fee, in exchange for faster payment.
Ten years ago, there was a negative connotation attached to factoring. A carrier was looked upon as weak if it had to rely on these companies as a financial crutch. Now, factoring is considered just another cost of doing business.
“What we see in the market today is that about 43 percent of carrier payments are made through a factoring company to address not only cash flow issues, but for administrative support as well,” explained Melissa Forman, Chief Operations Officer at TriumphPay, which provides carrier and vendor payment services to the supply chain industry.
“Carriers’ operational costs are real-time. They have to pay their drivers, make truck payments, pay the insurance, fuel the trucks – and they’re not getting paid for 30-45 days. Factoring allows them to pay for today’s work with tomorrow’s receivables. But it also puts them behind.”
That’s because not only are factoring companies charging between 3 and 5 percent of the face value of the invoice to process a carrier’s bills, once a carrier is in a factoring relationship it is “locked in,” with usually no flexibility to alter payment processes among their brokers – even if the same level of cash flow isn’t needed.
“Trucking companies typically operate on a 15 percent margin – if they’re lucky,” Forman said. “So if 5 percent of their sales are going to a factoring service, where they lack control to pick and choose specific invoices for QuickPay, it’s really restricting in what they can do to be able to grow and invest in their business.”
A broker’s perspective
Truck brokers are seeing the same trend in freight payments but through a different lens. While most offer some type of QuickPay service to their carriers, it’s not something they have been actively marketing. A big reason for that is it tends to put them in the same cash-flow bind as their carriers.
“We’ve had a QuickPay program available, but we weren’t advertising it – it was more on an as-needed basis,” Craig Cappello, President of Bradenton, Florida-based brokerage Route Transportation and Logistics, told FreightWaves. “If a carrier needed QuickPay, we offered it.”
In addition, he said, most of those companies that did sign up for a QuickPay program were fleet owners, both small and large, and not owner-operators. But that could be about to change.
“Personally, I think you might see a resurgence of independent operators coming back into the marketplace really soon because of technology that allows them to have complete independence without having those payment issues and back office things to worry about.”
TriumphPay has the technology that’s starting to make that change happen. Its software provides a single interface for carriers to manage all their paperwork in one place while giving them the option of using QuickPay or continuing to factor their invoices for brokers not yet on the TriumphPay platform.
As a product of Advance Business Capital, an operating subsidiary of TBK Bank, SSB (which itself is a subsidiary of Triumph Bancorp, Inc.), TriumphPay has already paid over 70,000 carriers through the brokers it has partnered with so far.
“We have the technology platform, but we also have the supply-chain finance piece that really wasn’t in the market before,” Forman said. “We’re handling our broker customers’ carrier payments as an extension of their Accounts Payable team through our integrated platform. That then provides the liquidity when their carrier wants to get a QuickPay.”
Forman pointed out that with TriumphPay’s ability to offer QuickPay rates at less than the cost of factoring, carriers will have the option to begin paying off balances within their factoring company-broker relationship. “It’s all about giving control back to the carrier,” she said.
While TriumphPay does have competitors in the space, it’s the only one in the brokered freight world that is part of a bank.
The payment conveniences TriumphPay offers trucking companies has led to more carrier onboarding for brokers. “We have more carriers that are choosing the QuickPay option since it’s a 2 percent [invoice charge to use it] for same day payment versus net 30 days,” Lindsey Slingerland, office administrator for Wilmington, North Carolina-based Matchmaker Logistics, told FreightWaves. “There’s also a [direct deposit] option, which was something we weren’t to the point of offering yet, and a lot of carriers have been wanting it instead of a mailed check. Now they can get that for free.”
Brokers also get the convenience of keeping the transportation management and accounting systems they currently use, as TriumphPay is already fully integrated with several, including MercuryGate, McLeod, Aljex, TMW, AscendTMS QuickBooks, and GreatPlains – with more to follow – and has a development team on staff that can build custom integrations as well to support home grown solutions.
TriumphPay soon will be offering a document capture function on its mobile app that will allow carriers to submit their paperwork and create an invoice for their broker – a function carriers are currently using factoring companies to perform.
Making a change in the way freight payments are handled is helping level the playing field for carriers and brokers that make up that 85 percent of the industry that requires a different service model than their larger corporate counterparts.
“Especially over the last two years, companies like Coyote and C.H. Robinson probably had a real advantage on the technology side,” said Route Transportation’s Cappello. “I think that’s changing pretty quickly, because of companies like TriumphPay and others that are offering technology at a reasonable cost. That’s what I’m really excited about.”