Trucker Finance: The Good, The Bad, and The Ugly
Truck drivers deliver the things we eat, wear, drive, and own. They work hard and deserve every penny they earn. In return drivers are entitled to make a decent living and provide for their families.
Jennifer Lickteig, president of TBS Factoring Service, says she’s proud to work for a company that has been making truckers’ lives easier for more than 50 years. The transportation business has been good to TBS, and TBS has earned a reputation built on doing what it says it will do. That’s why it is so galling, she says, to see people taking advantage of the independent owner/operators she has come to respect and admire.
“You wouldn’t believe the things we see in this industry,” Lickteig says. “Everything from hidden fees to unrealistic requests for information that when not met, mean higher fees to the drivers.”
And that’s not the worst of it.
“We’ve seen some companies place blanket UCC liens against truckers who simply requested information from a website,” she says. “I know this isn’t going to make me popular in my industry, but I think factors should have more transparency and at least follow the codes of conduct that organizations like IFA promote.”
Freight bill factoring – trading a customer’s promise to pay in 30 to 60 days for immediate cash, at a nominal fee – is a widely accepted form of cash management in transportation. Companies like TBS fill a vital need, especially during economic downturns, when other funding sources are hard to come by.
Even now, with freight and transportation volume at record highs, more financial companies are entering the factoring arena, bring predatory practices designed to maximize returns, at the driver’s expense.
Signing up for factoring is a fairly in-depth process. There are many forms to sign and a lot of important details can be hidden in the fine print, which nobody reads – and that’s exactly what some of these companies are counting on, Lickteig says. She and her customer service team have spent a lot of time reading that fine print and have said many times over, “I wish every driver knew that.”
In today’s litigious society industry experts rarely give advice because it cannot apply in every situation and drivers must make their own decisions – including consulting a well-respected transportation attorney when facing a particularly tricky scenario. This list is meant to be a lesson in what an experienced factoring company has seen in the industry and provide an informed perspective on this important issue.
How it works: A Driver clicks on an online advertisement and provides basic information – name, address, and motor carrier number. The driver thinks they are requesting information about factoring services, but unbeknownst to them, they have actually authorized the company to place a blanket UCC lien against them.
Why it’s bad: As long as that UCC filing is in place, the driver cannot factor any loads through any other company.
The worst part: To get out from under the filing, a driver typically has to pay a fee –sometimes as high as $5,000. For nothing.
Pro tip: Know what you’re signing. Read the fine print. Never provide your carrier number, or other sensitive data, unless you know exactly how it’s going to be used. UCC filings are an important part of factoring and meant to protect the factor that is actually paying the driver, not to be used as extortion to get out of a filing.
How it works: A factoring company offers a tempting tease, snagging bargain-conscious drivers with a ridiculously low rate. Drivers sign a contract but find a minefield of tripwires that double or even triple the initial rate. These traps include requiring monthly financial statements (who has time for that?) or minimum volumes that a small operator couldn’t possibly achieve with a single truck. “And don’t get me started on hidden/higher back end fees for advances, ACH, same day payments and wire transfers,” Lickteig says.
Why it’s bad: Cash flow is critical, and all those nickel and dime charges and penalties can really eat away at a driver’s net proceeds fast, even when the “introductory rate” is low.
The worst part: These “rate bait” companies are experts at finding all kinds of ways to separate drivers from their hard-earned money. Many times, drivers gain a sour taste on factoring, and in the worst cases can even be run out of business.
Pro tip: If it sounds too good to be true, it probably is. Do your homework. Ask questions until you get all the answers you need. Reputable factors won’t mind the questions and in fact, welcome them. Third party and objective reviews like Truckersreport.com offer good insights.
How it works: Online services, including some embedded in online accounting software, offer a cash advance (sometimes called an MCA or Merchant Cash Advance) based solely on how much cash is flowing through a driver’s bank account on a monthly basis. When a driver accepts an MCA, they get quick funding but are basically giving control of all their incoming cash to a third party, to repay themselves however and whenever they want.
Why it’s bad: Unlike non-recourse factoring, where the factoring company’s only claim is to the factored freight bill, these lenders have the right to pursue legal action against the borrower to recover their money.
The worst part: When an MCA pays themselves back by taking cash directly from a drivers account every single day, they don’t care what bills are due, or even what has already been paid (like a mortgage) and hasn’t hit the account yet. This can cause a ripple effect of insufficient funds, missed payments and credit score impacts – not to mention being left stranded at Sunday dinner with the family and unable to use your debit card because the MCA depleted the account on Friday at 4pm.
Pro tip: Cash flow is critical. Find a factor you trust, and stick with them.
Lickteig, at TBS underlines that last tip.
“Truck drivers can really be hurt financially by not being fully aware of the consequences of the agreement they’re signing, and that can come at the click of a button,” she says.
Not all factors are created equal, but by asking questions, taking time to read the fine print, and picking and sticking with a relationship, truckers can rest assured that they have their cash needs covered by a trust.