How often do you think about your cash flow? Truckers likely think about cash flow more than any other profession, but for owner-operators, it’s literally everything. Without cash flow, there is no trucking business. Expenses like fuel and accommodations can leave a trucker stuck with very little money and uncertainty as to if and when a shipper will pay on time. For that reason, new freight finance services, like digital freight factoring, have come to the forefront of the industry. As explained by Grand View Research, “The global factoring services market size was valued at USD 3,235.88 billion [USD 3.2 trillion] in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 8.4% from 2021 to 2028.” To understand this new reality, let’s consider some of the problems associated with traditional freight finance, why modern factoring is app-based and instant, and the qualities to look for when choosing a service provider.
The Problems of Historic, Traditional Freight Financing
Freight finance is a complex topic that can range from bank-based loans through obscure and somewhat risky processes. In the world of finance, everyone literally wants to make a buck. That much is true; however, trucking companies should have to assume massive risks to get paid in a decent time. Still, it’s important to understand the problems of historically slow, traditional freight financing, which include:
- Manual processes that delay drivers with complex invoicing and financing.
- Limited access to freight finance for small and midsize owner operators.
- Challenges in submitting documentation to freight factoring services quickly and easily.
- Inability to gauge the creditworthiness of brokerages and other transportation partners.
- Trouble collecting payment from shippers on time and in full.
- Potential issues arising from disputes or contested rates upon invoicing.
- High startup costs for companies with limited capital.
- Inability to track which shippers pay on time.
- Arbitrary guidance on whether a specific company or invoices were eligible for factoring.
- Delays in payment settlement that result in fewer miles driven and more risk to brokers.
- Complex processes that used multiple systems and required manual intervention across multiple parties to get paid by a factoring service provider.
What Is Freight Factoring and Why Is It the Modern Solution to Trucking Payment Management
Freight factoring is a relatively simple process. A freight factoring service purchases invoices from a given trucking company. These invoices are usually purchased at a defined rate below their face value. As a result, the factoring service makes money by collecting the face value of the invoice from the shipper. The trucking company can then use those funds, transferred within a fraction of the traditional 30- to 90-day payment windows, at their discretion. However, traditional freight factoring was burdensome, rife with hidden costs and fees, and subject to a major issue.
Specifically, truckers would usually be at the mercy of a factoring service if a shipper paid late or didn’t pay at all. This carried a massive risk and undermined the efficiency and value of freight factoring itself. However, the digital age has given rise to a new standard in freight factoring and opened the doors to improvements that overcome these issues.
Top Qualities and Features of the Right Factoring Solution
Part of the issue with managing and leveraging freight financing software today comes from the diversity of available solutions. There are an armada of apps and systems that all promote a safer, more transparent solution to freight finance. However, reality rarely lives up to the hype, and for smaller trucking companies, especially owner-operators, finding the right solution can be a nightmare. Fortunately, the whole process can be simplified by looking into solutions that offer the following features:
- Digital invoice creation based on data entered in the factoring solution.
- Instant approvals based on pre-approved brokerages and network partners.
- App-based controls to submit invoices for factoring and upload documentation.
- Reliable, consistent payment in a set number of hours.
- Comprehensive tools in the app to help trucking companies track total profits, expenses by truck, and more.
- Clear, concise rates that show the exact fee structure for factoring.
- Contract-free services that allow truckers to factor one, some, or all invoices, depending on their current cash flow needs.
Reap the Rewards of a Better Payment Process With BasicBlock
The traditional approach to invoicing and cash flow management for small and midsize trucking companies was complex. It involved the use of invoicing software, multiple touchpoints with the factoring service, and an overly complicated series of steps. With today’s technology, both invoicing and factoring can come together via an app and make everything easier for everyone. That’s where the value of integrated and intuitive resources like BasicBlock have changed the game. A digital, advanced freight financing solution like BasicBlock amounts to enhanced driver retention by staying cash-flow positive and taking on more loads, more often. Sign up for BasicBlock today to see how digital freight factoring can help your trucking company thrive, avoid the hassle of traditional freight factoring, and get paid faster.