One of our clients, let’s call him Frank, explains how factoring relieved financial pressures of running a trucking company.
He had started his company about four years ago with one client, one truck and one driver, Frank. With dedication to on-time delivery all the time and customer service the company grew every year.
Frank recalls, “It was late on a Friday afternoon about two years ago. I remember perfectly because it was the day that I thought my ship had arrived, then seconds later I believed I was going to lose everything!”
“All office staff and drivers had left for the weekend, so now I could relax a few minutes before heading home myself. Out the office window I could see my fleet of trucks freshly washed and perfectly parked. On the cab nearest to me the company logo, a silver compass on black background, was caught by the setting sun. The sun had appeared to make compass points somehow spin. Little did I know, that in a few minutes, my head would be spinning too.
“This particular week, business had been good. We had hit the peak of our client’s shipping season. From first thing Monday morning the previous week clients had been calling scheduling multiple loads. Wonderful, this kept all the trucks on the road all week. Just the way I like it!
“My family had not seen much of me that week, so what could be better than to come home with good news. Before leaving the office, out of curiosity I decided to calculate the total amount of invoices for the week. To my surprise receivables were better than anticipated making it one of the best ever weeks since launching the company.
“Things are really looking up, a few more weeks like this and it could be time to consider purchasing more trucks. More trucks, more loads, more revenue, right? My wife is going to be so happy when I break the news to her. Can’t wait to get home.
“A little voice told me to look at the company bank balance and my bubble burst instantaneously. I went from being excited about the future, to having a brick instantaneously lodged in my stomach. Payments collected during recent weeks against outstanding receivables was poor to put it mildly. There wasn’t enough cash on hand to meet all my payables.
It’s not that our clients didn’t have the money, they were simply slow to pay invoices. Over the years I had learned that larger clients were deliberately took as long as they could to pay. They all paid eventually, but this week I couldn’t afford to wait on their terms.
“The next Friday was to be pay day and there wasn’t enough cash on hand to meet the payroll let alone any of the normal operating expenses to keep trucks on the road. How was I going to meet these expenses? I could stall paying vendors, but employees rely on me to be paid on time.
“Slow receivables were creating a serious cash flow problem, a problem that if not handled, could boil over into my home life. A bank loan would take too long to process. The next thought was using our personal savings and then how would I tell my wife?
“Although my invoice terms are “net 30 days” I knew, through experience, clients will take the full 30 and perhaps 60 or 90 days to pay. Despite a great week, none of these receivables would arrive in time to meet the next payroll period.
“Today’s cash flow problems were not due to this week’s loads, instead from clients not paying promptly on past loads. I had performed the service for the client by delivering on time while incurring the expenses involved but the receivables remain unpaid. My money was sitting in the client’s bank account and not mine. If I don’t have access to my money I can’t pay my bills including wages.
“So what’s going on here? The client is using my money to make money. They are probably paying other vendors quicker and receiving a discount for early settlement. For instance paying an invoice within 10 days to receive a 2% discount. If they paid my invoices on time I could take advantage of similar discounts from own vendors. Hardly seems fair, but this is not an isolated incident, this financial practice goes on all over the world and can destroy smaller businesses.
“My larger clients have me over a barrel and they know it. I could call and insist on them adhering to my payment terms, but then run the risk of losing the account. Or keep the account, tolerate slow payment but find a way around the situation.
“As it was the end of the work week there wasn’t much I could do immediately. Rather than burden my wife with the cash flow situation, I decided to ponder the scenario over the weekend and then take action first thing Monday morning.”
Frank started by conducting online searches to see if other trucking companies had run into similar problems. He was surprised to find he was not alone. He found the solution to his problem was to factor his receivables.
First thing Monday morning he called us to outline his situation and asked about solutions. During the conversation we discussed his current receivables situation. After confirmation with Frank’s clients, we purchased all the receivables and immediately advanced a large percentage to his company. The money was in his bank account in time to meet payroll that Friday.
The factoring process unlocked Frank’s money that were tied up in receivables. Most of the money was now in his bank account allowing him to take advantage of vendor discounts by paying quicker.
Are you in a similar situation to Frank? If so, call us for a free, no obligation discussion about your specific situation.
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