Slow paying debtors, the misery of every business owner at some point. Payment terms are not being met, receivables blow out and...
Why transport SMEs are exiting invoice factoring for cloud funding
Slow payments, rising costs, taxes and hard to get working capital are classic operator pain points.Team Waddle
Cloud-enabled transport operators are a new breed, they get the value “the cloud” brings to bottom line profits.
Slow payments, rising costs, taxes and hard to get working capital are classic operator pain points.
The key challenges facing operators of transport or logistics companies topping the list are:
- Cash flow management
- Waiting 30 to 60 days, or longer, for customers to pay
- Banks tightening small business lending criteria
- High costs from non-bank (alternative) lenders
The #1 question here is, “why bother making a move from factoring?”.
Factoring providers have been a staple for decades and for decades it has been the status quo, putting up with higher rates, paperwork and hidden back end work load is just what you do.
Many operators in the transport & logistics sector already use invoice factoring to close down the cash gaps created by seasonal highs and lows, keeping money at hand to pay staff and suppliers.
Let’s breakdown what you’re doing right now
When you factor an invoice, you’re charged fees on the invoice face value. Each one of these invoices is based on a load, usually made up of:
- Fuel costs
- Operator cost
- Maintenance/wear and tear
- Road tolls
- Rent for your premises
- Leasing/financing costs on the truck
Have you ever sat down and really (like really) done the numbers?
Factoring providers charge fees on each invoice, and some charge fees even if you don’t use the funding each month.
- Fees charged on invoice face value (not funds borrowed – secretly increases the lenders return)
- Costs vary, depending on when the invoice is paid
- You need to submit paperwork & proof of delivery/consignment notes
- You need to learn the factoring companies software (not designed for your transport operation)
- You need to pay staff or yourself to use it costing you in hidden work load
- If you can’t reconcile or have a staff member do it, you’ll need to hire an accountant or bookkeeper
- You need to double entry all the data into your accounting software
- You need to wait more than 24 hours to receive funds
Ok, so let’s say you can break down the cost per invoice raised for the just the finance and you know your profits per job/load.
Now that you know this, what is it costing you to administer the factoring companies funding for them?
Once you take on factoring, you'll be paying for the hidden administration that wasn't in the glossy brochure or indicative offer you'll be sold on
SEE ALSO: Invoice Finance Rates: Traditional Lenders Profit From Your Confusion
If you’re not doing the work, you’ll be paying someone else to do it. Here’s why:
Factoring providers use third-party software designed and built either in the United States or Europe. These systems are built to work stand alone that you need to use.
- You’ll need to key in or upload information from your accounting software each day
- Email or manually upload invoice copies with supporting documents each day
- Wait for the factoring company to release payment information from your customers
- Let factoring companies send monthly statements to your customers
- Let them ring your customers on your behalf to confirm invoices exist
- The factoring software usually won’t talk to your exisiting systems at all
- You’ve now got another thing to look after when it’s just suppose to be borrowing money
That’s not even the best part yet:
In addition to the above, you’ll enjoy:
- Manually reconciling payments only once your lender updates this information
- Figuring out how to allocate the costs, factor fee, discount rate, admin fees etc etc.
- Make a staff member administer the account, taking them away from regular duties and/or
- Hire a bookkeeper or possibly an accountant to figure out how much it’s costing you each month
- Don’t forget the constant phone calls to the lender
The reality is, most business owners stick their head in the sand when it comes to figuring out what factoring really costs them. It’s put in the “too hard” basket to be figured out by the accountant come end of year.
Bill shock is the classic response. “oh but it was only 2% per invoice + interest”, “how has this cost me this much?”, “why am I charged each month even though I am not factoring all my invoices?”.
Here’s why it’s not your fault
Factoring has been around since forever and a day. Your accountant or finance broker has been dealing with the same old providers. They won’t recommend anyone else because they usually golf with the sales guys and feel comfortable referring you time and time again.
“If it ain’t broke don’t fix it” is sometimes the attitude when it comes to financing offerings. Technology and lending options are rapidly changing and this mentality just doesn’t cut it anymore.
99% of the time you only focus on the costs and the amount of money you can get approved for without a fleeting thought to the impact on your operation.
You’re not alone – invoice factoring is a $70 Billion + industry and it’s a specialised commercial lending product recommended by advisors “in the know”.
If you’re currently in a factoring arrangement, you’re either thinking “nah I am happy with what I’ve got they give me money when I need it”, “I can’t stand this anymore” or you’d prefer not to take a close look at how it’s impacting your profits because it’s working and you’d rather not know.
There’s other reasons why you haven’t looked around:
- You’re stuck in a long-term contract
- You think it’s too hard to change, having to update banking details etc
- You’re stuck on the merry-go-round of drawing funds and the anxiety of leaving is too much
- You don’t know what it’s costing you so your blissfully unaware
- The person that referred you to factoring is making money from your financing and reassures you that it’s still the best option.
The bottom line here is, “What is it truly costing me not to change?”
SEE ALSO: 21 Hidden Invoice Factoring Costs You’ll Need to Know (RESEARCH)
Cloud invoice financing is the modern alternative
Invoice Finance has gone through a significant evolutionary change, here’s why.
With more businesses taking up cloud accounting and online invoicing software, innovative lenders like Waddle have developed financing products that can connect to your software online and automate the entire lending process.
Just like downloading a new app on your phone, you can simply connect Waddle to your accounts, obtain a finance offer and be up and running within a day, getting on-going access to new funding against your outstanding invoices.
Invoice Finance is not invoice factoring, here’s why:
With cloud accounting becoming very popular, online invoice financiers like Waddle have changed the landscape by removing any of the administration involved in qualifying and operating these facilities.
For the business owner this means no disruption to their operation and no audits. Once a business creates new invoices these are synced directly to their Waddle account instantly to be drawn-down against for working capital.
- No funding delays
- Everything is automated
- Your customers won’t be contacted (confidential invoice finance)
- No paperwork
- Simple line of credit (feels just like an overdraft) with hassle-free costs
- No manual uploads of documents, sending information each day
- Everything you do within your accounts is synced to the lender (no double handling)
- No lock-in contracts or nasty get out clauses
- See also: Invoice Finance Is A Tool The Big Boys Use, Now You Can Too
Transport business need to know that financing and hidden admin isn’t eroding their profit margins. Cloud-enabled operators can integrate every system from invoicing, con notes through to financing.
They can now view real-time invoicing and enjoy live access to immediate funding on any device.
Before you roll into another year with your factoring provider, check out what you could be saving.