As long as freight moves faster than freight payment the role of receivables financing will play an important role in facilitating trucking transportation. The large gap between extended customer terms and the immediate costs of trucking has opened the door for financing firms to establish an increasingly prominent role in the freight market
The critical need for more predictable cash flow to support carrier direct expenses like wages, fuel, maintenance, leases, and insurance drives carriers to monetize their receivables with advances and quick pay. Most freight brokers also require enough funding to float a significant balance of outstanding receivables that is anywhere from one to several months of sales. Cash flow requirements for brokers can’t really be alleviated by deferring payments to carriers as they will quickly find capacity unwilling to serve them.
Factoring companies have taken this fundamental industry need and developed full-service offerings that extend into much broader administrative support functions that manage the entire order-to-cash cycle to ensure the proper invoicing and payment disciplines are maintained and as a way to support more significant fee structures. While cash is king, these services also use their scale to assess creditworthiness, streamline invoicing, and add a broader set of payment options. The best factoring companies are heavily invested in modern technology to facilitate effective credit adjudication, document management, party identification, fraud detection, and transaction automation. They also offer full transaction support through a combination of phone apps and web portals that provide excellent visibility for transaction parties throughout the transaction life cycle.
As convenient as the best factoring companies have become, the workflow is still a redundant effort to the life of a load in the TMS. The double entry of the core transaction data is often a significant pain point for users. Adding the transaction data and uploading load paperwork can take 5 to 15 painstaking minutes per load depending upon the quality of the interface and the complexity of the necessary transaction details. Of course that still leaves the monitoring and accounting processes in this separate venue so there are many minutes more committed to resolving final settlement and freeing you to your core objective of growing a profitable business. Over the years some factoring companies have enabled spreadsheet uploads and other technical conveniences that mitigate a bit of the extra workflow, but even the spreadsheet uploads can be finicky with any non-compliance and still time-consuming. It is even more rare that significant data can be returned to the TMS. For a long time, duplicate and triple entries were just accepted but annoying realities. There was little relief in sight.
Enter the modern embedded API solutions that sync neatly into the freight broker TMS workflow, stripping out redundant effort and improving the accuracy and compliance in the process. First, the labor savings are compelling; we observe processes that routinely take under 3 minutes from opening the carrier email to full review, approval, and job submission. Our next designs are in place to cut that to 2 minutes, while simultaneously amping up the document data validation points. The actual uplift to transmit via API takes 5 to 15 seconds rather than 5 to 15 minutes to manually upload. In addition, effectively implemented integration requires only minimal keystrokes to create the factoring job, and the required paperwork is confirmed in advance so a complete job can be sent over every time.
Even the most effective portals can’t supply the speed and precise accuracy of direct system-to-system exchanges. Avoiding common keying and administrative errors that anyone handling a lot of volume will make is the best way to eliminate time-sucking discrepancies. But to assess the full value, one has to consider that the best solution is a two-way integration that helps users monitor the factoring transactions throughout the entire process cycle, including automated accounting back to the freight broker TMS. When users can incorporate all the confirmation of tasks, completion of events, exception management and automation of the accounting, the time savings gets amplified significantly. The part that is far harder to account for is the overall improved user experience. Users live in a world that is increasingly rich with distractions; a consistently well-presented interface and intuitive workflow trims the stress out of successful transactions and spares that energy for more fruitful activity.
All of these advantages and more also accrue to the financial services providers. TMS platforms become a valuable ally in the sales process by demonstrating convenient workflow and improved processing metrics. The TMS team has insight into account nuances and can contribute to low-stress implementations and often TMS support handles the majority of the technical use questions without any impact at all on the Finance service team.
Finance operations are at their core, risk management enterprises. The faster and cleaner the money turns, the more it earns. Of course, it's great to start with customers who are appreciative of their primary ease of use, but that speed of processing also reduces latency. Less time between delivery and invoicing allows less time for document manipulation and other forms of fraud. If transactions get processed manually they are inherently exceptions. Executing fraud through the TMS also adds layers of complexity in the data manipulation and easier audit access as significant inhibitors to malfeasance.
Accuracy in the transactions is the best friend of finance. In addition to the avoidance of re-work and the heavy cost of customer service, the financing companies can rely on TMS invoices that are properly detailed including the Notice of Assignment and shipment details with all the precision in details like accessorials Invoices that are familiar are easier to approve and starting the clock sooner, not only means quicker Shipper payment, but also allows more time for exception management prior to prompting recourse provisions, which stress the relationship and add burdensome cash flow consequences for the customer.
One of the most frustrating disturbances between factoring services and their brokers and carriers is a surprise slug of transactions that are not supported by credit line expansion. It is only natural that freight volume increases attract a lot of focus on freight management and credit approval is seen as a necessary evil. The longer transactions accumulate before getting invoiced, the more likely expectations will become misaligned. When posting transactions to the finance service companies is easier, the processing tends to happen without the need for larger batch workflows that can both delay the delivery of invoices and make customer accruals more erratic and less reliable for shippers. That same improved predictability helps finance services anticipate and mitigate concentration concerns as receivables demonstrate more predictable payment and fewer outlier exceptions.
Finally, friction free transactions keep everyone focused on positive growth effort and stress-free retention. We have direct examples of customers growing quickly and becoming finance service “favorites” that have less fear of credit limits; they are often held out as the standard bearers that guide the benchmarks for the rest of the portfolio. These customers, with better performance metrics, also improve the content of the portfolio the finance service extends when expanding its capital. Ultimately a better-performing, lower-risk portfolio, which is bolstered by distinct performance improvement initiatives, leads to a lower cost of funds—and every financing service can align to that objective.
In summary, all parties benefit from the convenience of a strong API integration between the finance service and the TMS when the workflow is seamlessly embedded into the standard billing and settlement processes of the TMS. Multiple aspects of risk management are enhanced. Profit-draining administrative costs are driven down across all stakeholders and the alignment generates sustainable growth interest. At EKA Solutions, we are proud to say that we have been able to work closely with Denim and an excellent list of shared customers to accomplish tremendous efficiency improvements in a people-friendly manner. The list of successes is long—one year into execution and enhancements are mutually embraced so we can keep improving the best-in-class user experience for customers we are proud to serve together.
Ready to build friction-free financials with EKA? Schedule a consultation today.
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