A History of Invoice Factoring in the Trucking Industry

A History of Invoice Factoring in the Trucking Industry

Accutrac Capital 22-Feb-2016 0 Comments

Invoice Factoring has accompanied and supported the long haul trucking industry since its early days. Following World War II, expansion and improvement of highway systems in the US and Canada made it possible for the trucking industry to become a vital part of North Americas supply chain network. With the resulting surge in over the road freight transportation, US banks and independent financial firms fully adopted factoring arrangements to suit the needs of trucking companies. A boom in funding transportation companies had begun.

A Well-established Form of Business Financing

Throughout the 60s, 70s and 80s the trucking industry continued to evolve as an essential industry. At the same time, partial deregulation of the industry resulted in dramatically increasing the number of trucking companies in operation. Increased competition played havoc with volumes and freight rates while at the same time rising interest rates began to challenge trucking companies ability to secure financial backing. Factoring provided a distinct advantage over the restrictive covenants of a banking line of credit as it does not involve the same credit covenants. This propelled Invoice Factoring even further forward as a viable cash flow solution, increasing its popularity as a well-established form of business financing.

Factoring is used more than All Other Types of Business Financing

One of the greatest advantages and most attractive features of contemporary invoice factoring is the continuous level of cash flow it generates into a business. Because increased cash is triggered by new invoices, the factoring system provides available financing which automatically adjusts to the companys unique rate of business growth. Invoice Factoring is the only finance mechanism directly linked to a companys sales. The more invoices a company generates, the more access it has to immediate cash.

Many of North Americas leading companies are avid users of this financial system and have been for decades. The factoring of invoices is used more than all other types of business financing combined. One of the largest users of invoice Factoring is the transportation industry. 

Invoice Factoring isn't a new financing product

The practice of invoice factoring dates as far back as 4,000 years to the Mesopotamia Empire. Later, the Romans adopted a similar financial structure by selling promissory notes at discounted prices. As Europe evolved and commerce began to thrive, invoice factoring was widely adopted in the clothing, import/export and manufacturing industries. Factoring was first introduced to the Americas around 1620 when the Pilgrims began to colonize North America. As the colonies developed, factoring took its place as a prime source of financing.

A cotton grower in 18th Century America typically sold their product to England and France. The cotton had to be grown, harvested, warehoused then shipped by sea to the European buyer. Payment would then have to make the long sea voyage back until it finally made it into the hands of the grower. If you think 30 to 60 days is a long time to wait for payment, imagine the difficulties a plantation owner would face having to wait months for compensation. During those days, invoice factoring delivered an essential means of providing cash advances to the producer, finance the credit extended to the buyer and insure the credit strength of that buyer.

A Prime Source of Funding for Trucking Companies

In today's financing world, factors provide an equally significant role in the movement of freight. Due to the daily capital investment needed to keep equipment moving, trucking companies require a steady and reliable cash flow solution. As the industry is plagued by numerous challenges, including slim margins and slow paying customers, banks are characteristically reluctant to qualify transportation companies for sufficient credit. For this reason, Invoice factoring remains a primary source of funding to the trucking industry.

The Future of Invoice Factoring:

Invoice factoring has evolved over the centuries, yet remains relatively similar to its original form. The success of this financial arrangement is based on the expediting of payment on revenue already generated. Factoring isnt a loan, instead, it is the selling of your invoice receivables at a discount in exchange for immediate cash. This simple financial structure holds numerous benefits that favors the business owner:

  • Immediate payment on account receivables due
  • Professional AR management is included with the service
  • No Financial Ceiling; the more invoices you generate, the more funds you receive

Invoice factoring has been around for centuries and will continue to provide financial support to the trucking industry for many more. As trucking is now a significant niche market within the factoring space, industry specific factoring companies have emerged providing specialize services to trucking companies of all sizes. These industry specialists offer the most competitive rates, cash advances on loads in transit, equipment financing and discount fuel programs. As long as there are commercial trucks on the road to deliver freight and generate invoices, these specialized factoring companies will continue to service the industry.

For more information about factoring your freight bills, contact Accutrac Capital at 855-790-0906. or visit us online: www.accutraccapital.com
 

 

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