Ready for some myth debunking about the logistics industry? Sure, it’s a gargantuan multibillion-dollar multi-corporate enterprise complete with the veins and arteries rivaling that of the human body, what with the vendors, semis, stations and bills of lading long enough to choke the heavens and suffocate the fiery pit of Hades. It’s exhausting, and many of us may think it’s the bane of our existence, but the fact is this – the trucking industry fuels our economy.
This, naturally, makes us think that all logistics corporations are these mega-giant conglomerates with the power to level a planet, very much like the Empire’s Death Star in Star Wars. Here’s the truth: logistics companies are actually quite small.
Here Are the Alarming Facts About Freight Companies
Statistics never looked as polarizing as they do here, starting with the general revenue generation we see from corporation to corporation. This is a $255B-year enterprise with over 500K companies out there in the U.S. doing business for multiple other corporations requiring logistics. Did you know, though, that….
- 4% of Those Trucking Companies Have Less Than 28 Trucks?
- Or How About the Other 96% Having Less?
- Even More Staggering, 82% of All Companies Actually Have 6 of Fewer Trucks
The industry doesn’t seem that ‘big’ now, doesn’t it? It’s like comparing dinosaurs to fire ants. What you have to understand, though, is that a colony of fire ants can probably do that much more damage than a triceratops can thanks to the overwhelming numbers. It makes sense.
Knowing That, How Do These “Small” Freight Companies Then Stay in Business?
It’s a good question, because as entrepreneurial as we may be, everyone knows how hard it is to ensure payments stream in. It’s a lot easier to send an invoice than to receive one, and no one knows that better than a logistics company. Those bills are hefty –
- They Pay for Petrol
- Drivers’ Salaries
- Health Insurance
- Repair and Maintenance
Rightly so this logistics industry is a big one! Likewise, companies might have trouble maintaining those bills, and a lot of times these small logistics businesses will spend more time chasing after invoices over driving to destinations, and it is unfortunate. How do they maintain operations, bill payments? It’s simple: it’s called freight factoring.
The Idea Behind Freight Factoring
Bank loans are a major hit or miss for logistics companies, plus they often can’t wait the 30 to 90 days for collection of invoices, because by then, bills need to be paid, trucks need to be maintained, and drivers need to get to hospital for many cases of accident claims or highway hypnosis. It’s not pretty.
However, ‘freight factoring’ solves the problem nicely, and it’s just one of the ways a smaller trucking company can eliminate wait times for invoice payment, creating a continual cash flow even when clients don’t pay right away.
A freight factoring company actually doesn’t have a thing to with logistics. There are no trucks. No drivers. Rather, what this kind of company does is collect all invoice payments for you and then pays you 70% or more upfront. Once all the invoices have finally been paid, the factoring company then pays you the remainder, minus a factoring fee, and that fee often runs anywhere between 1% to 3% of the dollar amount. That’s not a bad deal.
It’s like a cash advance, basically, and we all know how that stuff works. There’s a risk. This is why it’s important to always inquire about freight factoring company’s policies, just to make sure that the company is the right one for you, because there are a variety of payment structures to consider. Which one’s the right one for you is the question.
- How quickly can you get funding? – Always ask this question. Freight factoring is just as competitive as freight delivery, so start shopping around by seeing how expedient companies are. Look for “same-day funding” or “next-day funding.” Others will only fund your invoices after verifying customer bills, and that can take more than a couple of days, so be selective.
- What kind of service do you provide? – Know what their operations are like. If they have live communications, perhaps a 24-hour call service, you might have a contender there. Customer service has to be at its premium. If not, move on to another option.
- What about credit protection? – You have to know that there are two different types of ‘factors’: non-recourse, and recourse. Recourse factor companies will send chargebacks to you for all unpaid invoices. Non-recourse factor companies will actually protect your credit in the event clients don’t pay those invoices. That’s good for you, meaning you’ll still get paid even if the invoices don’t. A company offering this service, though, will obviously end up costing the logistics corporation more, so weigh your options carefully.
- How much do I get advanced, and how much do you hold onto? – The fees vary. Just know that. This is shopping. Picture you, the logistics CEO, at the store, shopping for the best can of soup to buy. You have a budget, so you want to cut corners and go with the sale prices. It’s the same thing here in this logistics business. Be price savvy and thrifty (but to a certain point, obviously).
- How much will it cost to use your services? – Again, it’s all about competition. Some companies will charge more, some less. It’s all based on sales volume, number of invoices, number of customers, the contract period and other variables. Do your homework. Factor in the costs on your end and see if you still come out on top with some ROI to boot.
- How do you carry out credit checks? – This is insanely important, as credit checks are a must with freight factoring companies. They need to know that your customers will pay, and there’s no better way to measure that than with a credit check. Know how your freight factoring company does those credit checks, because it’ll determine if that factoring company will even work with you.
- How much of the billing do you handle? – A big part of the appeal of freight factoring is its all-inclusiveness. Many will simply handle everything for you, not just paying you. They’ll do the billing, and if you shop right, some will actually do the invoicing for you, saving you more time and money in your own operations. These are all factors that you have to take into account, plus the fees, and then crunch your own numbers to see if there’s a good investment there.
- What are your requirements for invoicing? – There are some special fine prints, written between the lines, for many freight factoring companies, so find out if you’re allowed to specify which invoices you want to factor, or if you have to do a ‘blanket’ contract. Find out, too, if the company will charge on the gross amount or the net amount.
- How long is the contract period? – Some companies are flexible, and some aren’t. Know what you want. Many contracts will go for as little as 3 months and as long as 36 months, and everything in between. Others will give you the option to cancel at anytime. Which one would you prefer? That’s the big question to ask…
So Many Choices, so Many Deliveries to Make
Those are your nine top inquiries. Consider them carefully. It’s a lot of work and consultation, yes, but it’s all worth it in the end. The fact is this – you can afford to pay a fee to ensure your invoices get paid on a timely basis, because for you, the logistics company, time is money.
Just make sure you work with the right freight factoring business. The wrong one can end up being just another expense you can’t pay thanks to the fact that you’re still waiting on your clients paying your invoices.