Factoring for trucking companies and brokerages has skyrocketed in the last 10 years. An estimate on factoring company purchases is $90 billion annually. There are about 250,000 active for-hire carriers with 96 percent having six trucks or less. Factoring remains a necessary and viable tool for smaller carriers who have limited access to bank lines of credit or asset-based lenders. The transportation factoring company fills this void through the built-in elasticity of its offering – helping companies expand when the transportation industry is booming and sustain business when the industry is down. 

In 2021, our nation’s trucking companies had one of the best years, with freight rates (or rates per mile driven) soaring to record highs. The combination of federal government support programs coming out of the pandemic in 2020 with favorable freight rates caused an expansion of new trucking entries and fleet growth. This created overcapacity, as consumers shifted their spending to services, and returned to restaurants and travel.

All the catch-up in the supply chain created overstock, and freight tonnage began to contract.

In the second half of 2022 and so far in 2023, the transportation industry has suffered through a 30-percent reduction in rates per mile, dropping below breakeven for many small trucking companies. Large fleets have reported a severe reduction in earnings and lowered outlooks for the remainder of the year. Through May of this year, the Department of Transportation (DOT) has recorded a net reduction of 15,000 fleet authorities.

Contributing to the current state, during 2021 and 2022, the costs of both used and new tractors and trailers rose dramatically. Those ordering new tractors faced a 12-14-month wait at a 60 percent average higher cost. This pushed up the cost of used equipment as firms held onto their units for longer. Putting more miles on the trucks increased repair costs and a shortage of parts occurred. Driver payroll increased and insurance costs rose.

Even in a dynamic rate market, cash-flow pressures remained, and transportation factors stepped up. Funds advanced had to grow with increased activity, in many cases rapidly with the supply chain problems from the pandemic creating excess freight.

Small and medium-size carriers need factoring due to cashflow pressures. Diesel fuel and driver pay must be paid every week. The cost of insurance, repairs and payments for tractors and trailers require cash outflow that cannot wait 45 days for payments. Carriers seek the services of their factoring partner on invoicing, credit decisioning and collections. As technology has advanced, invoice and document presentment are now increasingly digitally managed, requiring a savvy partner to facilitate timely acceptance and payment.

Transportation factoring is more of a combination of services and invoice funding than in general factoring. Such offerings may include help in obtaining new motor carrier authority, fuel cards and fuel discounts, access to insurance products, transportation management software, tire discounts and even legal support.

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