When it comes to a small business, and especially so as a startup company, you’re a one-man operation. You’re looking for loads and you’re trying to find clients for whom to haul stuff. You’re trying to get things leveraged. You’re trying to schedule loads, drivers, maintenance and repairs. You’ve got to keep track of things for taxes and CSA compliance. You’re tracking all those little invoices and receipts—from fuel purchases, to repairs, to maintenance. And don’t forget the all-important driver’s logs and even office supplies. Of course, there are load confirmations and ensuring all the loads have been correctly invoiced and sent to customers, plus sheets and sheets of documents to keep your paper trail up-to-date so you have your ducks in a row should there be a problem.
What happens if you have a customer who’s gone 45 or more days without paying? You can try to chase that invoice yourself, spending valuable time that needs to be invested elsewhere. But if you’re out there chasing those old invoices, you’re not chasing new money. That’s not a good thing for anybody who’s in business. Now, you can hire someone else to do it. You can go to a collection agency, but you’re going to pay a fairly sizable fee—possibly as high as 50% or 60% of the total invoice.
Your third option is contracting with a factoring company.
Factoring isn’t a reactive situation, like chasing those customers and invoices yourself or hiring a collection company. Factoring is a proactive solution to managing your accounts receivables. They have the information up front. If the shipper/broker was paying in 15 days and now they’re paying in 20 or 30 days, a factor will know. There’s no way a credit report will have this information. The factor will most likely have several other carriers that haul for this same shipper or broker. This gives the factor a much larger and more complete picture on the paying habits of a specific customer. And then the factor has a larger amount of clout when it comes to collecting money owed its carrier clients. It has the financial ability to hire attorneys if and when it’s necessary to go after your money. You get a sizable back office that handles your accounts receivables.
Remember, when you give a customer a period of time to pay an invoice, you become that customer’s banker. In this day and age, that’s what you’re expected to do if you want to grow your business. But allowing shippers and brokers to become accounts receivable-invoiced customers can add a lot of hours and headaches to your already over-taxed time. And getting real-time financial information is nearly impossible for a small or micro-motor carrier. Having a factor in your corner, watching your invoices and the financial quality of your shippers, allows you to be profitable doing what you do best—hauling freight.