May 30, 2018 9:45 AM, EDT

Opinion: Factoring Services Can Keep Cash Flowing to Fleets

As 2018 hits its midpoint, fleet owners face an expanding obstacle course of challenges to keep their businesses running smoothly. The enduring driver shortage is leading fleet owners to add incentives, retention bonuses and benefits to attract and retain drivers. Just one truck was available for every 12 loads that needed to be shipped at the start of the year, the lowest since 2005. The impending “silver-tsunami” affecting many industries as the baby boomer workforce ages and retires is even more immediate for the transportation industry, with the average driver 10 years older than the average worker in other industries. Plus, operating expenses and fuel costs continue to increase for fleets along with compliance costs tied to the electronic logging device mandate.

Mary Ann Hudson


It all adds up to higher costs for transportation companies, putting pressure on their margins and challenging fleets to maintain cash flow while they are waiting on invoices to be fulfilled by customers. With invoice payments often stretched to the maximum allowable duration, many fleet owners have a substantial accounts receivable balance but no access to the cash they need today.

Cash flow is a key component of keeping a transportation business operating smoothly. Temporary, unexpected restrictions make it difficult for fleet owners to navigate the challenges of increased government regulation and rising operating costs. Cash flow provides fleet owners the flexibility to offer new incentives to retain and attract drivers, pay drivers higher salaries and offer benefits packages.

With steady growth in the transportation industry, factoring services can play a key role in supporting the growth of transportation companies along with ensuring adequate cash flow. Factoring services are a business funding solution that is designed to improve cash flow by releasing working capital from outstanding customer invoices. A factoring company provides a cash advance on your invoices, usually within 24 hours. Factoring services may differ between funders but can generally be broken down into three steps:

  1. The transportation business invoices its customers and sends a copy of the invoice to the factoring company, also known as the funder.
  2. The funder advances the transportation company a portion of the invoice value, in some cases up to 97% of invoice value.
  3. The funder collects the customer payment on behalf of the transportation company and distributes the remainder of the invoice value to your the company, minus any fees.

As a business expands, a factoring relationship ensures there are no unexpected cash flow restrictions that cause issues for day-to-day operations. Factoring accounts receivable for a transportation business allows the owner to take advantage of more opportunities by providing access to working capital as both rates and tonnage increase and fleet business grows. Factoring services can also help with administrative issues by handling tasks in the back-office, such as collections and customer audits, that otherwise might slide down the list of priorities for busy business owners, thereby costing both time and money.

The key to finding a factoring partner is ensuring that your chosen funding provider is willing to work with the specifics of your business and will not try to box your business into “standard” funding plans. Fleet owners looking for invoice factoring services should find a factoring provider with a very straightforward application process and one that specializes in providing funding for the transportation industry. A typical application process would include the business undergoing a simple credit check and discovery process so that the factoring provider can determine your specific funding needs. An effective factoring partner will build onto your existing invoicing system or process to streamline invoice acceptance and ensure a quick turnaround. Some transportation industry-specific factoring services can then provide 24-hour cash flow based on accepted invoices. There should be no hidden rules or fees uncovered later in the process and your partner should be open about other forms of financing, their drawbacks and advantages.

Alternate financing services, like factoring, can help fleets quickly bolster cash flow. Most traditional bank-driven financing solutions or Merchant Cash Advances, or MCAs, result in an additional payment that must be made monthly (even daily or weekly if using an MCA or similar option). Additional payment obligations like those that come from an MCA produce the exact opposite of what a business with cash-flow difficulties needs. Factoring services allow companies to access money already earned but that they do not yet have access to while reducing administrative workload and paperwork, instead of creating more. Factoring is an option well-suited to many transportation companies, enabling them to reduce costs, support growth and become more efficient.

Mary Ann Hudson is the executive vice president of Bibby Transportation Finance. She focuses on daily operations and expanding the company’s presence in the transportation sector.