B2B Payments

eCapital: Modernizing The Factoring Tradition For A New Generation Of Fleet

Of the hundreds of thousands of freight carriers in the U.S. today, the vast majority are small fleets with only a handful of trucks. These companies have minimal credit histories in an industry notorious for tight cash flows, and that struggle to access traditional bank loans has emerged as a big opportunity for the invoice financing industry.

The appeal of factoring services for small carriers often stems from invoice payment delays in an environment where getting paid is essential to booking the next job, noted Rich Piontek, president of fleet financing company eCapital. Even when invoices are paid consistently, a relatively short wait of a month or so introduces a range of receivables management challenges.

"Many brokers pay carriers quickly, cleanly and reliably in 21 to 45 days – but that just won't work for a business that is fairly cash-intensive, and not very well-capitalized," Piontek recently told PYMNTS. "These are growing companies, and in that regard, cash flow is always a challenge."

Brokers and shippers all have different versions of what they consider to be "fast" invoice payments. Even so, Piontek said, these carriers need cash as soon as a job is complete in order to finance the next one.

Tracy Groves, senior vice president of marketing and sales at eCapital, noted that this scenario is precisely why invoice financing has become so prevalent in the fleet and freight space.

"Invoice financing has been around for literally thousands of years," she said. "It's a service that works very well to support new businesses getting off the ground, or businesses that may not have substantial cash flow."

While factoring can sometimes come with high interest rates and fees, small businesses and sole traders operating a carrier business do not have to jump through the complexities of a loan qualification process, and can also receive back-office support from companies like eCapital in the form of collections management and billing services.

Despite the shipping industry's long history of relying on factoring to manage cash, changes are afoot. Piontek said a nationwide shortage of drivers, coupled with efforts to lower the minimum age (currently 21) to operate a commercial motor vehicle across state lines, is ushering in a younger generation of drivers. With that comes rising demand for newer technologies, particularly mobile solutions and, Piontek said, conducting business finance on a mobile device.

"It's a whole new demographic coming in who is much more comfortable with technology, who may have grown up with a laptop and a smartphone," he said. Piontek noted that today, the average driver age is 50, with retirement following closely behind. Younger, tech-savvy drivers are eager to conduct business, including finance and payments, on smartphones.

It's a key motivation behind eCapital's new app, which enables carriers to upload and digitize documents by taking a photo with their mobile device. The app supports invoice generation and submission to both manage their financial processes and seek financing against those invoices.

According to Hussein Yahfoufi, CTO and vice president of product and technology at eCapital, mobile solutions are a no-brainer in fleet, where professionals are "always on the go."

"A lot of the concerns that some may have had in the past about using the internet or phone for banking is behind us," he added.

Mobile support for invoicing, financial management and factoring is introducing a modern element to a centuries-old invoice finance solution, and it's one way that fleet finance is enduring massive shifts.

Other shifts include changing pressures on B2B payment cycles, according to Piontek, as more carriers begin working with shippers directly instead of going through brokers.

"It will have its own set of advantages and challenges in the payment cycle," he said, "because I don't think a commercial shipper has the sensitivity to paying carriers as quickly as brokers do."

But in other ways, this market will remain the same, the executives said.

For instance, according to Yahfoufi, cash flow management challenges are likely to remain a challenge for industry players. Even as brokers and shippers are able to integrate into invoicing and financing platforms like eCapital, their desire to pay on extended payment terms "doesn't change."

Looking at the factoring space as a whole, the debate around how invoice financing is classified has recently flared up again following recommendations from Fitch Ratings. The agency released a report earlier this year warning that trade finance is "debt-like financing," and may have "negative credit implications" on some businesses.

But Piontek said he doesn't expect any major changes to happen in this area.

"I think there is always going to be that discussion," he said. "I don't necessarily believe that there is going to be any kind of fundamental structural change in the accounting" of invoice financing.



The How We Shop Report, a PYMNTS collaboration with PayPal, aims to understand how consumers of all ages and incomes are shifting to shopping and paying online in the midst of the COVID-19 pandemic. Our research builds on a series of studies conducted since March, surveying more than 16,000 consumers on how their shopping habits and payments preferences are changing as the crisis continues. This report focuses on our latest survey of 2,163 respondents and examines how their increased appetite for online commerce and digital touchless methods, such as QR codes, contactless cards and digital wallets, is poised to shape the post-pandemic economy.