If you’ve bought a truck and obtained your authority, you are truly a trucking entrepreneur. Who knows — you may have planted the seed for a future mega-carrier. Some of the biggest trucking companies in the business started with just a driver and a single truck.
It’s important to understand, however, that your role has greatly expanded beyond that of a driver.
Think of the different departments you’ll find within a large carrier. Someone has to find and book loads, of course, and deal with the customers. Someone has to send bills for each load and perform collection activities for those that aren’t paid. Someone has to get the checks from the mailbox (or monitor bank deposits) and match the payments up to the correct loads. Aside from the financials, someone is needed to take care of registration, permits, insurance and compliance with all those regulations.
Someone needs to manage all of these things and more — and that someone is now you.
Some trucking business owners do a great job of juggling all these different tasks, while others have spouses or other assistants who manage the non-driving parts of the business. Many drivers, however, turn to factors for assistance.
At its simplest, factors deal with invoicing and collecting from your customers, keeping a small percentage of the revenue for their services. Most factors pay the carrier as soon as the invoice is turned in, and some even advance a portion of the amount for fuel and other needs. Most factoring businesses, however, offer much more than that.
Factors usually offer an option between “recourse” and “non-recourse” services. Recourse services specify that if the factor can’t collect from the customer, the carrier may need to pay back the amount they were paid for that load. Under non-recourse services, the factor assumes all of the risks; the carrier keeps the money even if the customer never pays. Of course, factors charge more for this service.
For a small carrier, the biggest benefit of factoring is cash flow. Many customers pay on a “net-30” to “net-90” day cycle, meaning that you’ll need to wait, sometimes for months, for their payment. A small trucking business that has to operate for three months before any cash comes in would have a difficult time staying in business.
Factors will ask you to contact them before agreeing to a load so they can check the customer’s background. This usually includes a background check, as well as a check of the customer’s credit record. In many cases, the factor has dealt with the customer before through a different carrier. If the customer fails the background check, the factor will inform the carrier that they won’t factor loads from that customer. As a business owner, you’ll retain the option of dealing with that customer or not, but if you choose to do so you’ll be responsible for the billing and collections.
You may also have the choice of not using the factor when working with some customers. For example, if you have a customer that always pays quickly, you may choose to deal directly with that customer and avoid the factoring fees. Not all factors offer this option, however. Some will ask you to agree to use them to factor all your loads. Others allow “spot” factoring, where you can choose which loads to factor. Be sure to ask about the policy when you consider a factor.
Many factors offer other services, too. Since they’re already handling cash flow, it only makes sense that they’d be able to handle tax filings and payments, too. Some offer fuel cards, often with a fuel discount for their customers. Other discounts may be available, on things such as tires, oil changes and maintenance work.
Expensive repairs like an engine rebuild can sideline a trucking business and, to make matters worse, owners sometimes turn to high-interest credit cards to fund repairs. Others turn to predatory lenders that may even insist on access to the business bank account to withdraw payments. Factors may provide lower-interest solutions that can help you get your business back in operation faster and at far less cost. In addition, some factors offer business education to help you better understand accounting and management duties.
Another service offered by some factors is licensing and permitting. They may have people on staff for this or an agreement with another company that provides these services.
Your relationship with a factor can be a huge benefit to your business, but it’s a relationship you need to make sure you understand before jumping in. Read the fine print — all of it. Ask questions and, if you aren’t sure about something, ask where to find it in the contract so you are aware of and agree with what it says.
Factors can smooth out the cash flow of your business and help you free up time to concentrate on the “meat” of the business — the trucking portion that actually pays the bills. The right factor will help you make sound business decisions and can lend a hand when things don’t go as expected.
Cliff Abbott is an experienced commercial vehicle driver and owner-operator who still holds a CDL in his home state of Alabama. In nearly 40 years in trucking, he’s been an instructor and trainer and has managed safety and recruiting operations for several carriers. Having never lost his love of the road, Cliff has written a book and hundreds of songs and has been writing for The Trucker for more than a decade.
