Oil Field Hauler
Small Fleet Trucking Company
As an owner of a trucking company, you understand the need to look for opportunities that will boost the bottom line. Pressures on margins that are part of daily operations – fuel costs, truck repairs and payroll – can take their toll on your cash flow. For this very reason, transportation factoring may be a good option for getting quick cash.
Utilized as a cash flow source for many industries, factoring is an easy solution to turn your invoices into cash. You can access crucial capital to pay upfront expenses instead of waiting 30,60, or 90 days for customers to pay on their invoice.
Generally, as a trucking company you have two factoring options at your disposal when you want to create cash flow. One option is to partner with a factoring company that specializes in the transportation industry. Another option provides similar service, but you would partner with a freight brokerage firm that offers factoring as an added service.
For some, the idea of using accounts receivable funding services with a freight broker sounds convenient. You are already in business with the firm, which acts as a liaison between you and your customers who need your shipping services. Trusting the freight broker to handle your shipment orders with care is one thing. Being confident that the same professional care will occur with your factored invoices is another matter.
The freight broker may offer a quick pay program and will factor future loads. However, there are several things that you should seriously consider before trusting a freight brokerage that offers factoring services.
Freight Brokers Offer Valuable Services to Trucking Clients
Services provided by freight brokers are valuable to you and your clients. As a profession, freight brokers help shippers find reliable carriers that are otherwise difficult to locate. They assist your trucking company with filling shipment orders for a wide variety of items. Payment for their efforts is usually paid on commission.
By using their knowledge and expertise of the transportation industry, freight brokers are a valuable resource in helping you achieve revenue goals. You may find that services through freight brokers are indispensable. So, accepting their offer to also factor your invoices seems like a natural transition.
However, take one step back and think about what a freight broker does for transportation services. They operate in a competitive industry where acquiring loads is the primary revenue source. Notwithstanding the clients that a freight broker may connect you with, you have a secure client base that is not common knowledge. A factoring company owned by a freight broker, or a freight brokerage owned and affiliated by a factoring company – also known as a FCFB – would have access to that secure database, which puts them in direct contact with your clients.
Using a freight broker that provides factoring services (FCFB) could compromise your list of clients. You may want to believe that your client information is secure with a company you are trusting as a financial partner. Since you can never be sure, it is best to avoid this type of situation.
Primary Concerns with Using a FCFB
The confidentiality of your client base is one of the primary concerns that you should have about using a FCFB. Freight brokers do not work for any one carrier exclusively; they are always looking for new clients who need reliable shipping services. Over time, disclosing direct shippers or loads introduced by other freight brokers that send you business may become compromised by your financial partnership. This is similar to taking the same information to your competitor, except worse. Not only have you disclosed ongoing information about your client base, rates, number of loads and payment history, but you have also formally introduced the FCFB to an open line of communication with your direct shippers and shippers your referring freight broker deals with.
A FCFB may claim that they will never solicit business from your clients, however someday your direct shipper might inquire about services and rates of the FCFB. There is no guarantee that the FCFB would turn down the opportunity for new business simply because it comes from one of your customers or previous loads you hauled.
Using a Freight Broker for Factoring Can Cause Problems with Other Brokers
To trust a factoring company owned by a freight broker (FCFB) requires putting your entire business list into the hands of strangers. This level of trust means that the FCFB will have information about other brokers such as:
How do you think your Referring Freight Broker feels about this?
All of this information suddenly becomes available to the FCFB. As your trucking company grows, you may have several referring freight broker clients that supply you with shipments. If you are using a FCFB, those relationships can become complicated. Some freight broker clients may question your financial affiliation with a FCFB and avoid giving you future loads out of concerns of them having their customers disclosed to a competitor.
Your Business Depends on Your Factoring Decision
Typically, freight brokers that offer factoring services will offer agreements and promises that counter your concerns about the confidentiality of your client base. But, you need to determine whether the future of your trucking company is worth the risk. Even if you have signed agreements from the FCFB that your client base is protected, you still have other worries. The perception of referring freight brokers regarding your financial arrangement can become tainted.
While the FCFB can promise to protect your company, the ultimate responsibility falls on you. The “do not call” list is ignored all the time by telemarketing companies just to make a sale in the United States. At the end of the day, you must have the best interests of your company in mind all the time.
Expecting others to feel obligated to keep their promises and protect your company is not a responsible business practice. Regardless of the promises, there is a definite set of inherent risks involved with utilizing a FCFB. You must make the best financial decisions that will impact the future of your trucking company.
Furthermore, your financial needs are too important to entrust in the hands of a part-time factoring company. Remember, the primary business of a freight broker is serving as a mediator between shipping services and an authorized motor carrier. Freight brokers have an important role in moving cargo to its destination. Factoring invoices is simply an additional service to make additional income.
Don't Take Chances with Your Bottom Line
In the final analysis, using factoring services that are offered by a freight broker is a bad decision for your business. Imagine how unsuccessful your business would be if you decided to focus on services that are separate from trucking. How long could you remain in business if you went to your competitors and dropped off a copy of your receivables and all the good rate paying load information? When you decide to use a freight broker as a factoring partner, this is exactly what you are doing.
When you choose to utilize factoring services to overcome cash flow hurdles, it is best to use a factoring company that is not affiliated with or owned by a freight broker. A professional company that specializes in trucking factoring will understand your industry just as well as a freight broker. The primary difference is that your receivables are safer with the truck factoring company that will not compete for your freight broker clients.
You should not want to trust the financial stability of your company to a FCFB. Working with a good freight broker means that they will add value to your company by helping you find shipments and generate revenue. Nevertheless, it is not a good idea to surrender your client list to a company that can effectively become a competitor.
Instead of relying on the convenience of a FCFB to solve your financial issues, you should consult with a transportation factoring company that only specializes in factoring. A professional factoring company will have the financial resources and efficient methods to quickly give you the necessary cash. You can move on to the next load and not worry about losing crucial business. 1st Commercial Credit is a factoring company specializing in trucking and other industries and it is non-affiliated with freight brokerage businesses.