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Commercial Lending

Operating at Your Best While Preparing for the Worst

Guest Author
Mar 27, 2020


To say that we live in uncertain times is a dramatic understatement. Political uncertainty, the threat of new tariffs, and the coronavirus pandemic have all contributed to a highly volatile outlook. This uncertainty is compounded in the transportation sector, where growth is closely tied to the output of the global economy. Coupled with long-term trends that have resulted in more competitive threats, price pressure, and increased service expectations, this volatility could hardly come at a more challenging time.

This should be a call to action for managers across the transportation sector to critically assess how their businesses could be affected by an economic slowdown. Fortunately, new technology solutions can create new ways to prepare. For example, by reducing costs and better managing risks, companies can ensure that factors and other transportation players are protected against the threat of a volatile economy.

Reducing costs

As Warren Buffet says, it’s only when the tide goes out that you learn who’s been swimming naked. One of the best things companies can do now to protect themselves from a downturn is to be in the best operational health possible. For transportation factoring, this means leveraging new workflow automation tools to reduce operating costs.

Unfortunately for many players, factoring today looks like it did 20 years ago—reading and matching thousands of documents and manually flagging and resolving discrepancies between different counterparties. This requires a small army of dedicated staff doing repetitive, but critically important work.

It is a slow, expensive system to maintain and one where errors are both common and expensive. All this eats into already-thin factoring margins.

In a crisis, the efficiency of that system could mean the difference between economic life and death.

Machine learning technology can dramatically simplify workflows and speed operations.

By using optical character recognition and a suite of robust, back-end learning technologies, the work of manually auditing, matching, and extracting information from documents can be automated away.

Using these tools, we have seen customers speed their processing times by as much as 4x vs. what is achievable with traditional systems and processes alone. This represents a stunning 60-75% net cost reduction on administrative processes, all of which translates directly to the bottom line—a boon in good times, and a lifeline in a downturn.

Bad debt

In 2019, the International Factoring Association estimated that the average write-offs for transportation factors totaled 0.5% of receivables purchased. We know from experience that these write-offs can explode during potential downturns, increasing by as much as 5x.

Given already-slim margins, it is no exaggeration to say that elevated bad debt levels can pose an existential threat to a transportation factor’s business.

Unfortunately, one of the standard procedures for managing bad debts, verification, relies on another outdated process: Associates spend hours on the phone with freight brokers (who don’t want to be called) to verify information about the client invoices that they’re purchasing.

The sheer volume of these calls is staggering: Leading brokers receive thousands of verification calls per day. And due to the challenge of executing verifications, most factors significantly under-verify, by limiting their focus to new or problem client relationships and high-value invoices.

Organizing verifications around these simplistic measures extends days receivables and increases the rate of disputes, write-offs, or worst, outright fraud.

Primary reasons for account debtor non-payment in 2018.

Figure 1: Primary reasons for non-payment in 2018. Manual verification can address over half of these cases (in particular, those categorized as “Unwilling to Pay” and “Fraud”), but only with significant investment of time and resources. Source: International Factoring Association Business Profile and Performance Survey, 2019.

Here again, technology offers a solution. Verification tools can automatically interface with brokers’ management systems to provide the most accurate, up-to-date information available about the underlying load to give factors confidence that they really know what they’re buying.

With comprehensive, automated verification, we estimate that over half of all bad debt expenses can be eliminated; dramatically improving the financial stability, profits, and resilience of factoring companies in an uncertain environment.

Flexibility and resiliency

In addition to direct cost savings and reductions in bad debt, new technology solutions also help transportation factoring companies flexibly manage their internal processes, in three ways:

  • First, by encoding business rules, they shift costs from labor (a fixed cost in the short run) to software automation, a variable cost.
  • Second, by simplifying administrative processing, these solutions allow new hires to more quickly get up to speed. Our experience has shown that automation solutions can reduce training time for new administrative staff from 2 months on average to less than a day.
  • Third, cloud-based automation solutions mean that staff can work remotely. This was a life-saver for Houston-based Single Point Capital, which was able to maintain continuity of its operations during Hurricane Harvey and could be a critical advantage as companies deal with the effects of coronavirus.

Summing up

Transportation and factoring may be inherently sensitive to swings and shocks in the business cycle, but there’s no need to be more exposed than necessary.

As experienced sailors will attest, the best time to prepare for a storm is before it occurs. By leveraging automation and the next generation of productivity tools, smart managers can ensure they’re in the best possible position to weather any economic environment that comes their way.

This post was written by Tom Durrenberger. Tom Durrenberger is the Vice President at HubTran, leading their factoring business. HubTran is a Jack Henry partner that helps transportation companies and factors work faster and smarter. Tom can be reached at

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