Scott’s Truck & Haul Factoring Story
Since the mid 1980s Scott’s Truck & Haul have been successfully running their freight business. They’ve delivered goods for nearly every major industry in the nation and for 20 plus years, business was booming as they’ve traversed the country in all weather for all clients. During the boom times from 2002 to 2007 Scott’s Truck & Haul was the mastermind of a top-rated accounts receivable in the trucking industry. Few customers were ever late on bills and those clients who were, were sure to turn in their late payments within a reasonable amount of time. Cash was flowing and times were good for all. See Trucking Factoring Rates.
But a short year later, in the fall of 2008, when the United States economy took a nosedive and businesses both small and large began to feel the pinch on their pocketbooks, those that used to make their demands had suddenly and largely gone silent. Business slowed down. And worse yet, Scott’s had noticed during the early part of 2008 that though the bulk of their clients were always on time with payments, the few late-bloomers there were, had seemingly started to spread this illness. And as spring turmed to summer and summer into the early days of fall, Marion C. Haskins, CEO of Scott’s felt a chill go down his spine whenever he would look at the weekly A/R reports. The number of clients who were late in their payments was continuing to grow.
He had gone to his administrators and asked them what the problem had been. Were they doing things different, or wrong, when it came to collecting overdue accounts? By his bookkeepers records, this wasn’t the case. He thought perhaps that he was losing clients to a competitor who offered rock-bottom prices with little to no guarantee of quality performance, and that the folks who owed Scott’s money had jumped ship and decided to leave him holding the bag. Perhaps they were unable to pay their debt to him, but were able to meet the costs of a lesser service. But after doing the cursory research for this and talking to friends in the field, he found that alas, no, customers of Scott’s hadn’t gone elsewhere. The had just gone!.
This current state-of-affairs was causing Marion Haskins to have some very restless nights. He had employees to pay, goods to ship, trucks to maintain and overhead that was almost unbearable when compared against the lack of funds that were coming in. At night he would speak to his wife Linda and shake his head in frustration.
“I have a bad feeling, Lin,” he’d sadly say to his wife.
“What could you do differently?” she would ask.
Marion would stare off into the distance, and then slowly close his eyes. In his mind he could clearly see the fleet of trucks purchased over the many years. He could see them on the road, delivering good to all his loyal customers. But then a haze would cover his trucks and his vast fleet would vanish to leave just a few. Why couldn’t he work out how to resolve this financial problem with his business?
“I know what it is,” said Marion. “I’ve relied too long on the profits I receive from invoices alone. I’ve let too many of our customers go too long without paying on their bills.”
Linda would look at her husband lovingly, and holding his hand would say ‘It’s such a harsh economy these days and our clients must be having difficulty meeting their responsibilities’.”
Linda was trying so hard to support her husband in these worrying times, while Marion was weighed down with the worry of how he was going to handle this situation he found himself in.
The following day Marion walked into his office with a spring in his step, determined to call each and every client who owed money to Scott’s Truck & Haul. Now, it wasn’t the most efficient way to spend a day as a chief executive, what he really needed to be doing was to be overseeing all of the other intricacies of shipment and delivery and reaching out to prospective clients or retraining his sales team to do the same. Even though he was doing something to help his company, he knew he had folks on salary to do just this thing. A waste of time – a waste of money – he had the best intentions, but all the while Marion was realising just how much trouble he was in.
After a half day of contacting debtors in vain – they dodged his calls or promised to call back at worst or made minimal interest-only payments at best – he was about to throw in the towel when his secretary Beverley knocked at his door.
“Marion, can I have a word?” she asked standing in the doorway.
“Sure thing Bev, come on in.” Marion relaxed back into his chair and looked up at Beverley.
“Well Marion, this afternoon I did some research, trying to work out how we’re going to get out of this mess.” She opened up a folder she had been carrying and pulled out a small wad of papers, placing them on the desk in front of him.
“Have you ever heard the word factoring?” she asked.
“It does sound vaguely familiar. What is factoring”? he asked.
“Well,” she began, “It’s actually quite simple really. Basically, factoring invoices means that we would get paid immediately for the loads we haul.”
Marion interrupted “Immediately?”.
“Yes, immediately,” she continued, “In a nutshell, it’s pretty easy. We start by having a professional account manager review our figures and help us set up a company profile. That profile will also include investigating our accounts receivable aging reports, our existing customer credit limits and so on. In addition, factoring will assist in determining our customers’ creditworthiness, independent from their credit relationship with our company. It’s a broad view.”
“Marion replied cautiously “I see – and what happens then?”
“Following the completion of their review and once we’ve been approved for a contract with the factoring company, then we sit down to negotiate conditions and terms. There’s a lot of flexibility depending on the business volume and credit histories. This company tells us what the cost will be to purchase factoring for our accounts receivable. We come to an agreement and the funding starts pouring out.”
Leaning forward, Marion studied the documents very closely.
“I don’t know, Bev – it just sounds too good to be true”, Marion said quietly.
“Yes, I know; that’s exactly what I thought at the beginning. But think about it, Marion: they’ve guaranteed that experts will do all the paperwork, and that will free us up to do what we should be doing – focusing on our customers in good standing, and that kind of stuff. And they’re flexible Marion,” she drew a circle around a paragraph on the document before him.
“Just how flexible?” asked Marion.
“It seems that they personalize their factoring charges so that the amount they’re prepared to work with is commensurate with our client’s debt and our needs. It only takes 2 to 4 days for this to be figured out. ”
“It does all sound pretty good, remembering that we’re all tapped out now with loans from the bank last year to repair vehicles, and we all know just how tight money is. We need to keep business rolling as normal and every day we’re going unpaid, we’re closer to facing some serious problems in both the short and long term,” said Marion.
He took a deep breath and looked at his secretary with something she recognized as hope.
“Exactly”. I think this might just be a way out of the trouble we’re in with these folks who owe us money.”
Marion took a moment to think about this solution, and agreed with his secretary. The clients who owed them money were long standing friends and professional resources of Scott’s. Marion wasn’t prepared to lose these relationships just because they were having financial issues at the moment. Marion knew that the economy had taken a hit and he knew that it would probably be a long time before things started to look up again. If he didn’t handle these debtors in the right way, that unknown amount of time could spell disaster for all of them. Of course he didn’t want to lose any more money, but he didn’t want to lose business either.
“Let me go over this tonight Bev, and thankyou.” Bev nodded, stood up and left the office feeling that she had helped her employer keep on his shirt and hers too.
Marion stayed at his desk for a long time, looking over the details they hadn’t discussed during their meeting. What other issues could freight factoring help Scott’s with? With his pencil gliding down the sheet he noticed that the factoring company could help fray the cost of fuel with fuel discount cards and fuel advances. In fact, Scott’s could receive up to fifty-percent cash advances upon load pick-ups. As a man who hated binding contracts with no room to breathe, he was pleased to see that this factoring company would not make him sign a long term contract, would not make him pay any sign up fees and there was no minimum volume required.
“I must tell Billy the good news,” muttered Marion to himself.
His son-in-law Billy had liked the idea of Scott’s so much and revered his father in law for having such business acumen that only two years before, he had gathered the venture capital to begin his own transportation service company. At that time Marion knew the struggles Billy would face, but he still encouraged him to follow his dream. With the economy the way it was, if an established company such as Scott’s was struggling then the little guys, like Billy, were going to be in even more trouble. But, an antidote may have been found in freight factoring and Marion was soon to find out.
A few months later after going through the entire application process and having the experts review his accounts receivable, credit history and statements, Marion found himself beginning to dig his way out of the hole his delinquent account holders had created for him.
They took on reasonable factoring purchase contracts and stopped spending their precious man hours scrambling to collect debt. They took that time and refocused effort to offering competitive prices in new territories. Marion looked back on the dismal months of life before freight factoring and almost shuddered at the thought. He probably wouldn’t be in business today had he not learned just in time about freight factoring. Also see Trucking Factoring Rates.