I noticed when I returned from vacation there were several questions on transportation factoring. One of them stuck with me: What are some questions I should ask a small trucking company to help qualify them for factoring? Below are some questions you may want to consider:
Tell me about your business. How long has the business been around? What did you do before starting this business? Hints: This conversation may also help establish the type of monitoring that would be involved with the account.
How many trucks are you running? Depending on the type of loads being hauled, trucks may typically carry from $8,000 to $12,000 a month in loads; loads hauled generally do not exceed $15,000 a month per truck unless the company operates in a unique niche of the marketplace, provides heavy hauling, etc.
Are you hauling full loads or LTL (less than a truckload)? Hints: LTL means smaller invoices and more paperwork; risk is spread among many invoices and customers which helps diversify the risk profile while also creating additional work in the account management.
Where do you get your loads? Do you have steady customers or do you get loads from load boards? Hint: if all loads come off the web, the client may struggle maintaining business profitably as these loads tend to be lower paying.
Who are your major customers (i.e., shippers, brokers, names of companies, etc.)? How many customers do you have? How many of them are repeat customers? How do your customers typically pay? Hints: if the customers pay very slowly, then your fees will be higher; the client may not be able to afford factoring. Trucking industry receivables tend to pay in less than 45 days. These questions will also give you an idea of how much time an account will take for notification, verification and collection purposes.
What is your typical invoice size? Hints: there is no “typical” but get a range from low to high. However, unless a trucking company is doing heavy hauling loads, they should not have large dollar invoices (i.e., $5,000).
What is your current billing process? How does it work? Can you walk me through what you typically do to get your customers their invoices and how long that process takes?
Do you have any special arrangements with any customers on advances for fuel, quick payment terms, or anything else?
Do you have a line of credit at the bank now? Hint: if yes, then a bank take out may be in order or subordination on the receivables.
Do you have employees? Hint: if yes, the client should be current with payroll taxes and other obligations. The client may use owner operators as well. If so, how many; are they always the same drivers or different ones each time, etc.? This may also reveal whether the company is brokering loads to other carriers.
Is the company profitable now? Hint: if they have a reasonable profit margin, the client should easily be able to afford factoring.
What about 2290 (heavy vehicle highway use) taxes? Do you have these? Are they paid currently? Hint: remember that these taxes are due annually and have the same priority on factors and lenders as payroll taxes.
The list of questions can go on and will expand based upon the company’s answers. Understanding their business, the collectibility of the invoices, and your risk-reward profile will help you better structure a transaction. Feel free to add more by commenting to this post.
Wishing You Continued Success. The Factor Guru.