Companies across the US are extending pay terms, leaving suppliers to pay the price.

Days payables outstanding at the nation’s 1,000 largest companies averages nearly 57. More than 40% of all shippers require pay terms greater than 30 days. Some of the nation’s largest companies even stretch days to pay to 120.

Extended pay terms financially strain suppliers, especially smaller businesses susceptible to cash flow struggles. This is particularly true for transportation providers, 97% of which fall into the small business category with fewer than 20 trucks.

Factoring addresses conflicting capital interests between companies and their suppliers by providing accelerated receivables at a fee. If leveraged correctly, factoring improves liquidity and profitability for suppliers. However, lack of understanding sometimes leads people to give factoring a bad rap as a poor business practice rather than a helpful financial tool. Those individuals might be the ones leaving the most money on the table.

Bad Rap #1: “Anyone who factors isn’t running their business properly.”

Transportation requires many large upfront investments for equipment and insurance, in addition to several thousand dollars spent weekly for fuel and pay. Businesses must have good cash flow to survive, which factoring provides. Receivable delays have a ripple effect contributing to financial impacts like late payment fees, loan defaults or credit line interest that could cost a transportation provider more than a factoring fee. Extended pay terms also stymie business growth in an industry currently short 50,000 drivers. Every business is different; therefore, factoring does not indicate poor cash management. Rather it shows companies working to thrive in this very capital-intensive industry.

Bad Rap #2: “I do all the work for you to get paid.”

The right factoring partner should decrease a client’s workload. Good factoring companies, like FreightRover’s partner Rover180, assume responsibilities for much of the back-office work around payments. First, factoring companies check shipper credit before a carrier picks up a load to ensure they are hauling for solvent businesses. Clients then submit invoice images by mobile phone or email. The factor issues payment to the client and collects on the invoice as it becomes due from the payor. The transportation provider can spend their time and resources moving more freight rather than calling multiple shippers collecting on invoices.

Bad Rap #3: “I’ve got bad credit. Factoring won’t help me.”

Factoring cares about the credit worthiness of the shipper/payor, not the payee. Many transportation providers that struggled with credit in the past prefer factoring. It often results in a lower rate than high interest short-term loans and provides quick payments to businesses unable to obtain credit otherwise.

Bad Rap #4: “You never know what you’ll actually be paid when you factor.”

Not all factoring companies are created equal. Understanding the factoring contract is key to managing receivables and knowing deposit amounts in advance. Some factoring companies offer a low invoice factoring rate, and then make additional money from monthly minimum requirements, invoice processing fees, and payment issuances. Other factoring companies might offer a slightly higher factoring rate and eliminate all other fees. Non-recourse agreements command higher rates than recourse. Factoring companies also consider how quickly they receive payment on invoices. Shippers with extended terms beyond 30 days could prompt higher factoring rates on invoices to account for the cash float. Businesses that know their contract and shippers, know their receivable amounts due.

Bad Rap #5: “Factoring costs too much.”

Companies have many financing options for their business, and factoring represents one of them. Transportation providers should compare factoring fees to other options like loans or credit to see what rate works best for their business. Factoring often proves to be the lowest fee option. Many suppliers that factor include the rate in their linehaul agreements with shippers to get paid quickly without compromising overall income. Businesses also benefit from other savings factoring companies may provide around equipment, fuel and insurance.

Factoring also creates some parity among shippers. Freight decisions transition from when a transportation provider will get paid to better metrics like lane quality, utilization and load rate to maximize profitability.

Bad Rap #6: “Factoring takes too long to get paid.”

Factoring issues quick payments by design. If a transportation provider does not receive payment within 24 hours, which is industry standard, a broken process with the factoring company likely exists and it is time to ask questions.

Bad Rap #7: “Once you start factoring, you can never stop.”

Factoring companies work hard to keep your business, but you can cancel based on contract terms. Contracts for reputable factors include defined durations and reasonable termination notice periods. To switch factoring partners, the process typically requires a written notice of termination and an authorization agreement to transfer receivables. The new factoring company will issue notice of assignments on the transportation provider’s behalf to each payor to update them on where to send funds. Switching factoring companies does require coordination between all parties, but the cost savings can be worth the work.

Businesses letting the myths outweigh the math might be missing out on money. To learn more about how the best factoring companies set themselves apart, watch our quick video on FreightRover Factoring, test our savings calculator, or request the right questions to ask factoring companies.

In the last five years, nearly $600 million has been awarded in independent contractor misclassification lawsuits in trucking. Adding insult to injury, the April 2018 decision in Dynamex Operations West Inc. v. California Supreme Court ruled that the ABC Test must be applied in analyzing whether workers are employees or independent contractors. The ruling applies rigid guidelines for classification and presumes workers are employees unless proven otherwise. This volatile legal environment has many wondering if independent contractors can be utilized by transportation providers at all.

Worker misclassification is a costly issue. However, by understanding the law and addressing risks, independent contractors can provide tremendous business benefits. Plus, eliminating the use of owner-operators would increase the current driver shortage by seven times overnight. The industry needs independent contractors to meet shipper demand, but companies must know how to work with them.

Employee vs Independent Contractor

Let’s start with the basics. The level of control a business has over a worker defines classification.

Employees are hired for a regular, continuous period. They work for an employer who maintains control over the work performance and product.

Independent contractors typically work under contract for a defined period. They perform a service for a company while maintaining their own financial independence. The contractor controls how the service is delivered and the final product.

Understanding the ABC Test

ABC is one of the most common tests used to classify workers. The test generally applies to compensation considerations. Under the ABC Test, independent contractors must meet three criteria:

  1. The hiring business does not control or direct the worker’s service performance (A test);
  2. Work performed is outside the usual course of business for the hirer (B test);
  3. The worker operates an independent enterprise from the hiring entity (C test).

The B test draws the most concern and elicits the question, can independent contractor drivers work for trucking companies that also have drivers as employees?

There are a few things to consider that leave California’s verdict under debate. First, while about two-thirds of states use the ABC Test, the Dynamex case was specific to drivers in California. Second, California applied the ABC Test in its ruling regarding minimum wages, overtime, meal and rest breaks, and wage statement violations. This application of the test omits other variables commonly used to establish independent contractor autonomy. Third, the Court left it open that other types of businesses involving product delivery may be viewed as outside of the usual course of the hiring company’s work even if they provide a similar service. Fourth, California’s application of the B test could conflict with economic regulation prohibited under the Federal Aviation Administration Authorization Act, which provides a broader definition of the B test. The FAAAA already struck down applications of the ABC Test in Massachusetts that limited the rights of independent business owners. Overall, California’s ABC Test raises as many questions as it answers.

Assessing Worker Status

In addition to the ABC Test, government agencies also frequently use the Common Law Test and the Economic Reality Test. The ABC Test may be the most stringent, but also the most ambiguous. Businesses seeking to classify workers as independent contractors would be wise to assess that decision using the Common Law and Economic Reality tests as well, which provide additional clarity.

The Common Law Test is primarily used by the Internal Revenue Service. It looks at who has control of the work – the business or the contractor. It assesses 20 factors, not all of which must be present to assign classification. Factors include:

  • Instructions and sequence – who determines how the work is performed?
  • Training – is ongoing training required from the hirer to ensure work is performed in a certain way?
  • Services rendered – must the work be performed personally, or can it be subcontracted/given to the contractor’s employees?
  • Hours of work – who sets the hours when services are performed?
  • Profit and loss – is time and labor pay provided regardless of who gains or loses economically based on the work provided?
  • Location – who chooses where services are performed?
  • Relationship duration – at service completion, can the worker move on to other projects outside of the hirer?
  • Integration of services – do provided services significantly impact overall daily business success?
  • Payment method – are workers paid by project or by regular intervals (hour, week or month)?
  • Business expenses – who is responsible for paying the worker’s business expenses?
  • Investments – who provides the tools, equipment, materials, and facilities to execute the project?
  • Service availability – is the worker free to provide services to the general public while partnering with the hiring entity?
  • Right to terminate and quit – does the employer have discretion to discharge the worker or can the worker quit without a breach of contract?

The Economic Reality Test establishes an employer-employee relationship when a worker economically depends on a business as services are provided. The test uses five factors collectively and examines the strength of each factor to determine a worker’s status. Factors include:

  • Degree of control – who controls the worker and the work product?
  • Opportunities for profit or loss – who profits from the success or failure of the business?
  • Investment in facilities – who pays for the facilities, tools and equipment?
  • Relationship permanency – is the relationship duration indefinite or periodic?
  • Skills and initiative – are the worker’s skills benefiting one business or being leveraged in the open market to support multiple businesses?

The three tests help the government protect workers. However, the government aims to avoid overly regulating the business of employers or independent contractors. Therefore, government entities typically assess the entire working relationship to make classifications. Factors indicating employee status may be balanced by other factors indicating independent contractor status. The major takeaway – failing to meet a factor among the tests may not necessarily change employment classification. However, better safe than sorry, and transportation providers should consult with their legal counsel to act on the criteria for risk mitigation.

What’s the Solution?

Should trucking just do away with independent contractors? No company wants to pay several million dollars in misclassification lawsuits. Companies also don’t want to miss out on millions in freight revenues and adding employee drivers is difficult, expensive, and time consuming. One possible solution? Modify business practices to shift more entrepreneurial control to independent contractors. For help with that, there’s FreightRover’s CarrierHQ.

CarrierHQ provides an online marketplace of fleet services designed for one-truck operations all the way to the largest carriers in the US. The technology was created specifically to address the industry’s increasing struggle to maintain the independent contractor model. When assessing who has control of the worker, CarrierHQ offers flexibility to fleets working to establish contractors as truly independent. Here’s how:

  • Autonomous enterprise operations – contractors have access to business formation services to create and manage their own business entity (LLC) and may apply for their DOT authority through CarrierHQ (requires Auto Liability insurance). By managing their own business under their DOT authority, they are capable of offering their services in the open market and aren’t affiliated with the hiring fleet’s DOT number the same as employee drivers.
  • Payment method – CarrierHQ offers driver settlement services. The benefits are twofold. First, contractors have the option to select how they want to be paid – weekly or by trip (addressing the pay by project consideration). Second, hiring fleets leverage a third party to provide differentiation between how contractor and employee pay is processed. Contractors with their DOT authority also can access FreightRover Factoring to further control the speed of their settlements.
  • Investments – CarrierHQ provides access to affiliate leasing entities for equipment needs. This allows contractors to acquire trucks and trailers for lease or purchase independent of the hiring fleet.
  • Business expenses – contractors can sign up for Comdata fuel cards with limits established by their credit score rather than using a card with financial attachments to the hiring fleet. This addresses classification concerns stemming from fuel advances or price-based access to fuel stations and per-gallon costs. Physical Damage, Occupational Accident, and Non-Trucking Liability insurance are available for purchase in the contractor’s name as well. Using a series of questions and answers, contractors receive quotes from multiple insurance providers to self-select their plan based on coverage and cost. The system delivers insurance certificates electronically to the driver and the hiring fleet. Online access to Auto-liability insurance is coming soon.
  • Control of the work – hiring fleets can launch a private load board inside CarrierHQ. Through a mobile app, contractors self-select freight eliminating the error of forced dispatch and supporting contractor control over the profits and losses of their business. Contractors determine what work they perform and how they perform it while still providing capacity to the hiring fleet.

CarrierHQ provides the blend of control and choice the industry has desperately needed. Fleets take back control of their business and have new means of addressing the potential dangers of worker misclassification. Contractors have an online marketplace providing choice around their work and flexibility on how they manage their enterprise. Independent drivers remain entrepreneurs, not employees. These contractors present more rewards, with more manageable risk, and the industry keeps moving forward.

Interested in learning more? Let’s connect to discuss how CarrierHQ can benefit your overall classification risk strategy.

Schedule a demo | Email sales@freightrover.com | Call 866-621-4145

 

To end FreightRover’s week focusing on women in logistics, we talked with all-star Misty Darnell of Paschall Truck Lines about her thoughts on trucking and the unique female perspective.

Misty Darnell Image

How did you get into logistics?

I received an offer to work fulltime while I was getting my master’s degree in finance. I got my first taste of logistics and instantly loved it. I love that there’s a new challenge every day. Nothing’s ever perfect within logistics – there’s always something that can be better, that can be improved upon. I did that and then got offered a job to come back 5 years after I graduated and to work at Paschall Truck Lines. I knew I loved trucking and it was a good opportunity to get back into it and do something I knew I liked. From there I’ve progressed into the roll I’m in now, which is Vice President of Corporate Development.

What are the biggest problems in the industry?

I think for any carrier the driver market and driver turnover are big issues within our industry. We must make trucking more attractive to more people and get them involved because we have a driver shortage. I think our biggest challenge currently is deciding what we need to do as an industry to get more people involved and wanting to become truck drivers.

Do you think being a woman in the logistics industry gives you a different perspective? Do you think you’ve brought anything new to the table being a woman in a traditionally male-dominated field?

My mind races at 100 miles an hour and is constantly thinking about a bunch of things at once. When you think about logistics and trucking, that’s exactly how trucking is. There are so many things going on at once. It’s not just one process, you’re working through the whole system. You’ve got your trucks to worry about, you have your equipment, your customers, and your drivers.

I’m not sure why there hasn’t been as many women in trucking – I guess because from a driving perspective everyone just thought it was more of a male job. But from the carrier and driver side of things, it’s a huge opportunity for women to come into this industry to give a completely different perspective and thought patterns. Women tend to look at things very openly and question things at times. I know for myself, I always question why I’m doing something and what potential opportunities might be there. I think logistics for women can be a huge opportunity for them to be successful if they can come in and handle the driver aspect of it as well as the back office.

What can other women learn from your success?

Within my organization, I’m the only woman vice president and I’m also the youngest. I sit on two vendor customer advisory boards where I’m often the only woman in the room. It’s easy to worry about stereotypes like, “Oh you’re a woman. Do you know as much as everyone else?” However, when you’re able to open your mouth and speak very intelligently, you instantly gain respect. As a woman, you must prove yourself. Be confident in what you’re speaking about and be knowledgeable. That comes with any industry and any job, but especially here where there traditionally haven’t been very many women at higher levels.

How is technology helping to bring more people into the industry?

The technology advances help enables automation and back-end procedures, which free up time to work more hands-on with the drivers. Technology allows us to reallocate resources. There’s a driver shortage and there’s also a shortage on the experience side. We’re a training fleet, so we hire drivers from CDL school and put them through our training program. We’re able to expedite processes and reallocate those resources to training novice drivers to become better long-term drivers.

What is Paschall Truck Lines doing to get people into the transportation and logistics industries?

On the driver side of things, we have taken a hard focus at hiring additional women drivers. Our percentage right now is about 8% of our total driver pool. I know that doesn’t sound like a lot, but within the industry it’s actually really good. We see hiring more female drivers as a big opportunity and we are trying to increase that percentage monthly.

More Women Truck Drivers: A Solution to Many Industry and Gender Challenges
I recently attended a national transportation conference, where a featured panel included a high-level discussion with leaders from three prominent trucking fleets. As they candidly discussed the challenges present in the industry, the driver shortage took center stage. I noticed as they discussed ideas around recruiting and retaining drivers, they didn’t refer to any drivers as women. “He,” “him,” “men,” “guys,” “the boys” – not a single reference to females. While I’m certain the phrasing wasn’t intentional, it does speak volumes about what’s missing in our industry – more women.

Addressing the Driver Shortage
According to the American Trucking Associations, trucking currently is about 50,000 drivers short, a number expected to more than triple by 2026. Despite comprising 50% of the US population, women only hold about 6% of truck driving jobs. This leaves a massive pool of untapped human capital to address the driver shortage.

It’s hard to be what you can’t see, especially when most recruiting advertisements feature men. I asked an agency specializing in driver recruitment advertising why that is. They stated that many fleets don’t request advertising geared toward females because the cost per hire increases for women. However, it’s important to assess the total value of a hire over an extended time.

According to Ellen Voie, President and CEO of Women in Trucking, women tend to stay with fleets longer, engage in less risky behavior, and value team collaboration and goals. Considering the whole picture, the return on investment of hiring a safe, goal-oriented, team player that prefers to stay with the same carrier for as long as possible should be very high.

Closing the Pay Gap
On average, women earned 28% less than men in the United States in 2017 according to the Pew Research Center. While the gap is closing overall, trucking represents a great avenue for closing the disparity even quicker. With most trucking compensation plans using per mile rates, productivity rules. Additionally, transportation wages are increasing, with driver pay up about 12% year over year. Trucking provides a fantastic avenue for women to earn equal wages in an industry with increasing compensation trends.

Women as Entrepreneurs
The US is home to 11.6 million women-owned businesses worth $1.7 trillion in revenue and employment for 9 million people. Women-owned businesses are growing at five times the national average. However, more than 50% of female business starts are in the health and human services sector. Logistics has been identified as a high-growth, high-wage industry where women aren’t aggressively starting businesses. In a market desperate for additional trucks, independent contractors and owner-operators hold the flex capacity shippers need. Many of today’s largest US fleets started with a single truck. Women as independent contractors provides a new avenue for entrepreneurs with high market demand already established.

Changing Lifestyles
Women historically haven’t entered the industry in large volumes because trucking hasn’t always supported raising a family or being a care provider. Equipment also hasn’t been designed with women in mind. Those things are changing. Shippers are redistributing networks to create more daily runs. Carriers are working to provide nightly or weekly home time to their drivers. Equipment manufacturers also are modifying truck designs to be more inclusive for all driver types and builds. Automatic trucks also have become prevalent in the industry.

More women also are looking for second careers. As Boomers continue to enter retirement, they average just $15,000 in savings. They also are living longer on retirement benefits as costs continue to rise. Retirement benefits are typically lower for women as they often earn less during their careers. According to an article published in The Atlantic, Social Security replaces only 40% of an earner’s income when they retire, when 70% is required to live comfortably. With more fleets offering no-cost or low-cost CDL training programs, trucking provides an easy-access alternative career for women. Hitting the open road and seeing every part of the United States while being paid seems like a retirement plan worth some consideration.

Breaking Down Barriers
Technology providers like FreightRover also help lessen the barriers preventing more women from joining the industry. FreightRover’s CarrierHQ pay-as-you-go insurance program offers upfront capital cost savings of more than 80%. Paired with per gallon fuel savings, low factoring rates, and business formation in under 48 hours, launching a fleet has become much quicker and more efficient. FreightRover’s partnership with Urgent Care Travel also offers reduced-cost medical access for drivers and their families at multiple locations throughout the US. Women can better care for themselves and their families while still being on the road.

Trucking needs more women. They represent one of the most viable solutions to truly address the capacity crunch. And, women need trucking. Equal pay, entrepreneurial opportunities, and a different career for evolving lives – trucking supports efforts to create better equality for women. When I attend the next transportation conference, I hope to hear a lot more mentions of “she,” “her,” and “women” when it comes to drivers and other careers in transportation.