Payment systems in the trucking industry have changed dynamically over the years. Now, with the increasing capabilities of technology, they're evolving more than ever. Let's discuss how payment processes have worked traditionally and throughout the course of time. We'll also take a look at the benefits of mobile payment systems. Finally, we'll cover how security plays a role in trucking payment systems that are successful and modern.
You'll walk away from this guide with important information. Furthermore, you'll come away with options to help you optimize your payment processes—starting as early as today.
Before we look at the new payment systems, let's take a quick look at how things used to be (and how things still are for some carriers).
Traditionally, trucking payment systems have been slow and clunky. A carrier will accept a contract from a shipper. Then, the carrier will complete the freight contract by picking up and delivering the freight as agreed on, for a predetermined rate. On completion with a signed bill of lading, the carrier sends a paper invoice to the shipper.
There was a time where all of this needed to be done either in person or by mail. You might not have received payment for several weeks.
Over time, there were minor improvements to the process. Fax machines, computer scans, and the like allowed for a faster way to deliver an invoice to a shipper. However, payments still needed to be processed and delivered the same way they always had. You, as a carrier, might complete your load and not see payment for it for a month.
There are some obvious reasons this delay in payment is a problem. Chief among them, however, is the ability to maintain the operations expenses of your company while waiting on payment for already completed contracts.
Next, let's talk about one of the primary ways carriers have worked to combat this process over the years.
You've likely experienced slow turnaround times for payment as a carrier. One of the most common methods of battling this has been employing a third-party service provider. These third parties are usually called factoring companies. Your company is likely to suffer from cash flow issues when dealing with slow payment. Factoring companies work to essentially finance your invoices.
I'll explain how this works. Once you've completed a load and created an invoice, you sell the invoice to the factoring company. Next, the factoring company will deposit anywhere from 70% to 90% of the invoice to your account immediately. You benefit by getting earlier access to a large portion of the funds you're owed. Your cash flow improves, which helps the company continue to operate smoothly. Once the shipper pays the factoring company, you get the remaining 10% to 30% deposited to your account at that time.
In exchange, the factoring company will deduct a small financing fee to compensate for its role in the middle. Your fee will vary depending on credit and volume. Generally, you should expect to pay anywhere from 1% to 4%.
This method involves some risk. Should the shipper fail to pay your invoice to the factoring company, you may be responsible to reimburse the factoring company.
Next, let's discuss how payment systems have become much more efficient.
It's not breaking news to say that technology has advanced significantly over the years. The past decade in particular has seen numerous areas of growth. The trucking industry, while slow to adapt, has benefited as much as any other industry. Here are just a few of the ways technology has helped trucking:
These are just a few examples. It's that last one, however, that I want to look at more closely.
The past few years have seen the advent of mobile opportunities for trucking paperwork. Your drivers can now use their mobile phones for a wide variety of processes. For example, your drivers can mark loads picked up or delivered, they can have bills of lading signed, and they can submit any form of paperwork digitally right from their very own phone.
You'll want to invest in this if you haven't already. After all, every aspect of your business will operate faster and more smoothly by taking advantage. Also, you may even have more success with driver retention in a market that becomes more competitive for drivers by the day.
Now, let's discuss the process for using digital technology within the payment process.
It's time to break down how the payment process with mobile capture works, step by step.
Rather than waiting on physical paperwork or the postal service, now you can complete every aspect of your load in real time. And if you arrange for direct deposit payment from the shipper, you can now cut payment turnaround time to as little as 48 hours. Compare that to the month-long time we discussed earlier!
Even more more important, this method is so much easier. You'll love it, your drivers will love it, and so will your clients.
As you know, security is always a concern when it comes to transferring funds digitally. Fortunately, there are options in place for both shippers and carriers to help with this. You'll find that this security often comes in the form of a third party.
If you're a shipper, you may prefer to have a third party handle invoices for you. There are various types of payment providers available. Generally, the most secure option is through a bank. Banks are both highly regulated and regularly audited, making them the most trustworthy source for sending payments. Importantly, banks will also not allow you to pay out funds beyond your capacity.
Similarly, carriers also may work through a third party, such as a bank. Banks can help ensure payments are safe and secure when you're transferring from one party to another. Also, a skilled IT professional can help set you up with network securities, preventing payment interceptions from outside sources. Multilevel authentications are often the first step in this process.
As mentioned earlier, the increase in technological capabilities has changed the industry. As such, they simplify nearly every aspect of your business. While there have been other methods to improve payments in the past, digitization provides many advantages.
For example, while factoring companies let you get your payment sooner, there are drawbacks. You accept a certain amount of risk in the event that a shipper doesn't pay. Furthermore, you're losing a percentage of your pay as a fee for that service.
Conversely, with mobile capture and digital invoicing, you're not only forgoing any possibility of debt to a third party, but you're also protecting and maximizing your net income.
At the end of the day, you're saving time, money, effort, and trees while you're at it.
This post was written by Matthew Zandstra. Matt has been working in transportation and logistics dispatch for the past six years, both as a broker and direct to drivers. He’s familiar with various facets of relationships, technical systems, pricing mechanics, and commodities.