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September 14, 2017 10:00 AM, EDT
Freight Factoring on Upswing in 2017
But 2018's ELD Mandate Might Drag Down Business, Executives Say
Factoring and owner-operators Owner-operators rely on freight factoring to stay out of the red. (Eric Miller/Transport Topics)

Freight factoring is on the upswing this year as traditional banks apply stringent lending standards and truckers who are most likely to sell invoices benefit from a robust spot market, industry executives say.

Owner-operators and fleets rely upon factoring to generate immediate cash flow rather than wait a month or two before the shipper issues a check. Since yesterday’s dollars usually fund today’s price at the pump, the lag can bankrupt a trucking company operating paycheck to paycheck. These small fleets don’t have the resources to track down a shipper and collect on a delinquent bill.

For others in the industry, when traditional banks won’t lend them money, they turn to freight factors, also known as accounts-receivable financing. With the financial sector rebounding in 2017, banks are stricter about who to lend money to than in the past, according to factors. The Standard & Poor’s financial sector index is up nearly 30% over the past 12 months.

People are pushing more products to market this year and the smallest expense is freight costs, so they’re willing to pay the costs.

Todd Ehrlich, Bam Worldwide founder and CEO

“There are household truckload names that have had poor earnings in the first and second quarters. The bigger trucking world is more stressed and that makes the banks more cautious about lending into the sector,” said Rich Voreis, president of Marquette Transportation Finance.

While he wouldn’t divulge financial data related to 2017, he called the year-over-year growth strong in factoring. Marquette courts trucking companies with revenue between $10 million and $400 million, not owner-operators or fleets with fewer than five trucks.

Bam Worldwide told Transport Topics that its average invoice price is up 35% year-over-year in 2017. The total number of invoices is 40% higher and the customer base has grown 35%.

“Generally speaking, people are pushing more products to market this year and the smallest expense is freight costs, so they’re willing to pay the costs. There is a lot of confidence in the economy and freight is being moved,” founder and CEO Todd Ehrlich said.

At Triumph Business Capital, the average invoice price is up about 10% versus 2016 and the average purchases per factoring client are up about 20%. Unlike Bam and Marquette, fleets with fewer than five trucks account for two-thirds of Triumph’s customers and about one-third of overall revenue. Triumph partners exclusively with the DAT to seamlessly factor through the load board.

“We have a window into what is happening, but we don’t necessarily have deep insights on why. We know that fuel is about 35% of an invoice and diesel prices have recovered from the $30 per barrel. We also know that the drivers are getting better prices per load this year,” Triumph CEO Steve Hausman said.

As robust as factoring has been in 2017, the electronic-logging mandate likely will drag down business in 2018. While many large and medium-size fleets already use ELDs, most industry experts agree that the mandate will force some owner-operators and small fleets out of business. Triumph is offering a limited-time deal to hopefully mitigate the fallout.

“We’re offering no out-of-pocket costs for an ELD at any Pilot Flying J travel center. All our clients need to do is get a code from us. We’re trying our best to keep them alive,” Hausman said.

Integrity Factoring also expects that the ELD mandate will be bad for business in 2018, since owner-operators are the company’s main customers. This year over-the-road accounts grew 10%, although it couldn’t provide information on average invoice dollars.

“When truckers turn over it’s hard on the factors. We pay a lot money to underwrite them, set them up with fuel cards. It’ll definitely be irritating to deal with, but I don’t think it’s going to enough to significantly hurt our business,” said Rae Lynn, Integrity’s owner.