Economic slowdowns occur when economic growth slows. They’re often the result of government policy changes, such as applied or proposed tariffs, rapid business expansions, or global trade disruptions.
These unstable times present problems across many industries. The transportation industry, specifically trucking, faces several issues, including consumers spending less, rising costs, tariffs driving up the prices of international goods, and soaring insurance and truck repair costs.
Transportation invoice factoring is a smart way to ride the changing economic tide. Maintaining strong cash flow is key to saving your business from financial strain that can lead to closure or bankruptcy.
The Impact of Economic Slowdowns on the Trucking Industry
During an economic slowdown, two key factors affect the trucking industry. First, consumers become worried and slow spending. If the slowdown is going to turn into a recession, people want to start as strong as possible. Saving money for necessities becomes essential.
Second, manufacturers slow down production rates. If they keep producing goods at the same rate as before, they’ll have unwanted inventory sitting around, taking up space. You don’t want to have to trash items that expire or go out of style before spending picks back up.
With less to haul, work is harder to find. You’re making less money, but bills like insurance, taxes, and truck maintenance keep rising.
Using Transportation Invoice Factoring to Protect Your Business
Many companies in the transportation industry are struggling with rising costs. Fuel prices may finally seem to be subsiding, but insurance rates are skyrocketing. These sudden increases offset every gain.
In some areas, taxes are also rising, further burdening companies. Add in economic slowdowns, in which consumers slow their spending and manufacturers reduce production. The trucking industry feels the strain. Work decreases, costs rise, and savings dwindle.
There’s another issue to consider. As a trucking company owner, you’re used to clients paying on Net 30 or Net 60 terms. You have bills to pay, and the money you earn needs to arrive promptly. Waiting a month, two months, or even longer for the money you’re owed is frustrating. You can push clients to pay faster, but with the terms outlined on the invoice, they’re not required to pay immediately.
Transportation invoice factoring is a solution to ensure steady cash flow. Money comes in and goes out with the help of a financial partner. You do the work and submit a payment request through your factoring app or the company’s website.
They process the request. If it’s approved, you get paid instantly. With invoices sent to Saint John Capital before noon EST, same-day payments are possible. You receive the money the same day you do the work.
Another benefit of transportation factoring is that you often receive a fuel discount as part of the program. Use the fuel card to purchase discounted gas or diesel. You save money on every gallon, and the savings come directly from the balance you were paid through your factoring plan.
Tips for Choosing the Best Factoring Partner
A strong cash flow protects your company from economic slowdowns. The issue is that not every transportation factoring company offers the benefits and agreement terms that benefit your specific needs. How do you choose the best factoring partner when there are so many choices?
Several considerations must be made, but two of the most important questions to ask yourself and the companies you negotiate with are:
What happens if my client fails to pay an invoice?
Are there hidden fees?
Recourse vs. Non-Recourse
Recourse factoring rates are lower, so more of your hard-earned money goes into your account. However, you also risk whether your client will pay as promised. In an economic downturn, there are no guarantees that a broker or shipper won’t run into financial problems and shut down or file for bankruptcy. Paying extra with a non-recourse agreement protects you from these risks.
We like to think of a non-recourse policy as insurance against financial strain. However, rates are higher with this protection. It’s similar to insurance policies that cover you if something does happen.
You’re a safe driver and haven’t had an accident in 20 years. You’re driving at night when a deer runs into the road in front of you. You avoid hitting it but hit a speed limit sign instead. Without auto insurance, you’re paying the full repair bill. If you’d spent the money on a comprehensive policy, you’d be responsible only for the deductible. The insurance would cover the rest.
Non-recourse arrangements protect you if a client fails to pay an invoice. Your client may never default, so you pay a higher fee and never need the protection. However, it is extremely helpful if something goes wrong.
You received a $9,500 advance from the transportation factoring company. Thirty days pass, and your client still hasn’t paid. You learn that the company abruptly shut down. You must repay the factor $9,500. If your finances are already tight, that repayment is all you have. How do you pay for repairs, fuel, and other essential business expenses when your account balance is $0?
You don’t have to pay that money back if you have a non-recourse arrangement. The fees are a little higher, but the protection is worth it.
Hidden Fees
Some transportation factoring companies advertise ridiculously low factoring rates. Suppose you have a small fleet and see a 0.5% factoring rate. It’s a fantastic rate. What they don’t tell you is that there are many fees hidden deep in the contract.
Aging fees – Charge for clients who pay even one day late
Cancellation or early termination fees – Penalty if you want to close your account before the contract is up
Check cashing fees – Charge for having to cash checks for any client who doesn’t pay electronically
Credit check fees – Charge for running a business credit check
Fuel card fee – Penalty for not using your fuel card enough in one month
Invoice processing fees – Per-invoice fee for processing a payment request
Minimum volume fees – Penalty for not doing enough work
Monthly maintenance fees – Account management fee charged each month
Wire transfer fees – Charge for wire transfers of funds
Look for Transparency
Saint John Capital does everything possible to make your transportation factoring agreement as clear as possible. Hidden fees are not our style. We also offer competitive industry rates on our factoring agreements.
As experts in the transportation industry, we also offer money-saving benefits, including fuel discounts and low-interest business lines of credit. Reach us for a free rate quote.
