Supplier payment, and specifically shipping payment, terms in the transportation industry are known to be extremely long, and most transportation carriers cannot afford to wait 30–180 days to get paid. Factoring the invoice is when a carrier factors its invoices – it pledges the collection rights in its accounts receivable to the bank and, in exchange, the bank advances cash in about 10 business days.
By industry averages, this cost to carriers is 3% of every receivable — often escalating up to a 25% annualized interest rate. The bank then waits the 30–180 days and collects directly from the freight shipper. If inflation is thought of as a silent tax, invoice factoring is a second layer of silent taxes on everything we buy.
More than 1 million U.S. trucking companies are factoring 100% of their invoices, and 50% of third-party logistics companies are too. Due to inflation, larger transportation companies are also losing 3% or more of their invoice values when waiting over 60 days to get paid by shippers. These costs create higher freight rates, and the excesses ultimately trickle down to every household and consumer.
Factoring companies and banks can act as the equivalent of pay-day lenders, buying the truckers’ invoices and giving them access to their pay sooner. However, the arrangement results in truckers essentially selling their invoices at a discount.
Due to a lack of options, truckers are subject to interest rates on their invoices that can get as high as 30%, according to Watkins. Though it gets truckers paid quicker, they can still be left waiting over a long time to get out of the factoring contract.
“It’s one of those deals that is easy to get into but very hard to get out of,” said Watkins. “One of the first things that a factoring company will do to a motor carrier they sign with is put a lien on their accounts receivables.”
Therefore, no other company can legally pay that motor carrier directly without paying the factoring company. So truckers still may need to wait for the long invoice terms to conclude before they can receive money from another factoring company or a customer.
The payment terms are often laid out in the contract agreed by the trucker, but they have not been getting shorter, and there is no law nor regulation on how soon a broker has to pay a motor carrier, Watkins added.
TruckCoinSwap’s proposed solution
The TCS proposed solution, to the truck payment problem, is a decentralized and blockchain-based marketplace where truckers can sell invoices and turn them into funds within two days.
On TruckCoinSwap’s exchange, which is accessed through a phone app, the collection rights on an unpaid trucker’s invoice are exchanged for its newly created TCS token based on the polygon blockchain. TCS is currently listed on three exchanges and available in 80 countries, according to the company.
The amount of the TCS token that the trucker would receive would equal the expected cash value of the invoice payment. The trucking company could then immediately sell its TCS on one of TruckCoinSwap’s partner exchanges to turn it into US dollars.
For example, if the invoice value was $10,000 and was settled, or “factored,” with a bank or intermediary, the trucker would have paid the industry standard 3%–4% fee, totaling $300–$400 to get the cash in about 10 business days. Many banks and factoring companies also offer “quick pay” products that provide funds in just three to five business days for another 1%–2% fee. Had the trucker needed its cash quickly, the fees would have totaled $400–$600. On that same $10,000 invoice, the trucker can now settle with TruckCoinSwap using TCS Token in about three business days — for the low total cost of only $10.10