How invoice factoring helped a startup grow from 1 truck to 20

Invoice factoring can make all the difference for a new business

In this comprehensive case study, we'll explore how non-recourse invoice factoring can be an ideal financing method for a small trucking business, comparing it to other financing options and demonstrating how various financial tools can be integrated over time to support rapid business growth and long-term success.

Follow the journey of TruckRight Express Inc

TruckRight Express Inc is a fictional small trucking company founded by Sarah Right, a former long-haul driver from Atlanta, GA with a vision to build her own fleet from the ground up. This case study will follow TruckRight's growth from a single truck operation to a thriving trucking and logistics business, highlighting the role of non-recourse invoice factoring in its success.

Company background

Sarah started TruckRight Express in 2020 with a single truck she purchased using her savings. Initially, she drove the truck herself, focusing on regional routes in the Southeast. Her excellent service and reliability quickly earned her a solid reputation among brokers and shippers she found on free load boards as well as through word of mouth from other owner-operators.

Early challenges for the business

As TruckRight began to grow, Sarah faced several financial hurdles:

These challenges are common in the trucking industry, especially for new owner-operators and small fleets. Sarah knew she needed a financial solution for the business that could address these issues without putting herself or the future viability of the business at risk.

Exploring financing options for a small trucking business

Sarah talked with people she trusted and quickly understood that she needed to do some extra research before choosing a financing source to integrate into her business plan.  She explored various financing options to support TruckRight's growth, including traditional business lines of credit, merchant cash advances (MCA) from fintech lenders, SBA loans, and non-recourse factoring:

First, Sarah approached her local bank for a line of credit. After days of waiting to schedule a meeting with a banker and going through tons of paperwork, the bank offered the following terms:

Sarah appreciated the opportunity to develop her relationship with her bank and build her business credit rating, but there were some obvious pros and cons to the business line of credit offer:

Next, Sarah went online and found a popular MCA fintech lender who offers short-term business loans and small business financing.  The application process was quick and she had the following offer within just a few minutes:

Sarah knew that fintech MCA loans were popular and saw advertising for them regularly, but she had concerns about giving a lender permission to take daily withdrawals from her business checking account. What would happen if she had a truck break down and could not run any loads for a few weeks?  She was not sure if the lender had a clear understanding of how the trucking industry operates and wondered if the lender would be flexible enough to work with her in the event of a market downturn:

Sarah also knew that SBA loans can be a ideal way to finance a startup trucking business so she met with a local bank that has experience in SBA business lending:

Sarah appreciated these terms and felt comfortable with the interest rate, however she was concerned that the rigidity of the loan covenants would prevent her from meeting her working capital requirements, especially when she needed extra cash for fuel, maintenance or truck repairs at a spur-of-the-moment:

Finally, Sarah explored non-recourse factoring options and received the following offer when she called Cashway Funding and requested a custom freight factoring plan:

Sarah was impressed by the in-depth trucking industry knowledge Cashway provides but she also appreciated that Cashway maintains an arms-length relationship with her business and does not interfere with the way she finds loads, manages her finances or operates her equipment:

Sarah's choice for business financing: Non-recourse invoice factoring

After careful consideration, Sarah decided to start a non-recourse factoring account with Cashway Funding for TruckRight Express. Her decision was based on several factors:

1.  Immediate, large-scale cash flow improvement

The same-day business funding Cashway provides would allow TruckRight to cover operational expenses without delay.  Sarah could upload delivery paperwork to Cashway and get paid for every load she hauled on the same day she would deliver it.  

2.  Easy to scale the business without any additional hassles or headaches

As the business grew, the amount of funding available would grow proportionally with invoice volume. Cashway's easy factoring terms made it simple for Sarah to focus on growing her customer base and monthly revenues without having to worry about credit limits or lending covenants.

3.  Credit protection & risk mitigation

The non-recourse aspect of the factoring account Cashway provided meant that TruckRight wouldn't be liable if a freight customer became delinquent, insolvent or failed to pay due to bankruptcy, providing valuable protection for the young company.  Cashway's factoring plan also included a number of other valuable trucking back office services to protect TruckRight from common pitfalls that affect growing transportation businesses.

4.  No debt incurred and nothing to pay back

Unlike loans, factoring wouldn't add debt to TruckRight's balance sheet, which helped Sarah maintain a healthier financial profile for the business.  This allowed her to ultimately use her good business credit to finance the purchase of productive equipment, which would not have been possible had she taken out loans to cover her working capital needs.

5.  Operational benefits that improved business profits

Sarah was pleasantly surprised at the the amount of time factoring with Cashway Funding saved her each day. The access to unlimited credit checks on new customers, billing & collections service, fuel discounts and invoice verification all helped her business operate much more smoothly, but what really stood out to her over time was that whenever she needed someone to talk to about a business issue, she could pick up the phone and speak with a friendly & experienced Cashway factoring professional who would understand exactly what she was going through and be willing to help her solve the problem.

Implementing Cashway invoice factoring into daily operations

Once Sarah signed up TruckRight Express with Cashway Funding and created a factoring account, the implementation process was straightforward:

Initial results from invoice factoring were extremely positive

Within the first month of using non-recourse factoring, TruckRight experienced significant improvements:

As it became clear that her Cashway factoring account was the perfect fit for her now rapidly-expanding trucking business, Sarah was able to begin executing the next growth stage for TruckRight Express.

Expanding the fleet and growing the business with additional services

Using the improved cash flow from factoring, Sarah was able to re-invest her profits into growing TruckRight Express and focus on building a small fleet.  Less than six months after implementing Cashway factoring into her operations, Sarah had enough consistent revenue to consider adding a second truck. Sarah used the following strategy:

Together, these improvements took the TruckRight Express business to the next level:  Revenues more than tripled almost immediately, yet Sarah was prepared because the Cashway invoice factoring facility ensured that her amount of working capital actually increased as her business volume grew.  This made it much easier for Sarah to stay focused on keeping her customers and employees satisfied and on-track.

Growing pains: Challenges and solutions

Despite the overall success, TruckRight faced some challenges with factoring as the business continued to expand. 

1.  Helping customers understand that invoice factoring improves service quality

Some clients were initially wary of paying a third party. Sarah addressed this by personally explaining the process and assuring them that the verification, back-office support, billing and collections services that Cashway provided actually improved the quality and consistency of service that TruckRight could provide. As customers began to realize that Cashway worked at the instruction of TruckRight (and not the other way around) they became very comfortable with the arrangement and pleased with the personal service Cashway provided.

2.  Managing factoring fees

While factoring provided crucial cash flow and administrative support for TruckRight, the fees were higher than traditional financing. Sarah mitigated this by:

• Because Sarah set up TruckRight Express Inc as an S-Corp for IRS tax purposes, she worked carefully with her accountant to ensure that TruckRight's factoring fees were categorized as an ordinary and necessary business expense and therefore an allowable business deduction, since invoice factoring is an overwhelmingly popular practice for small businesses in the trucking industry.
• Sarah also worked closely with her Cashway account manager to negotiate better rates as TruckRight's volume increased so she could pass along the savings and remain competitive.
• Using Cashway's fuel cards, discounts and custom purchase reports to manage fuel transactions and give her the data she needed to negotiate better fuel credit lines than TruckRight would have been able to obtain when the business first opened.
• Improving operational efficiency by investing the money the Cashway account helped her save on administrative expenses into higher-level TMS and routing software for her drivers, dispatchers and staff.

Integrating additional financing tools with invoice factoring

As TruckRight continued its growth journey, Sarah realized that invoice factoring with Cashway now enabled the business to integrate a combination of financing tools that could optimize the company's financial strategy and boost further expansion. She implemented the following approach, which  allowed TruckRight to leverage the strengths of each financing method while minimizing their individual drawbacks.

Results and longer-term impact of the business financing plan

Over the course of three years, TruckRight Logistics experienced significant growth and success:

Future outlook for TruckRight Express Inc

As TruckRight looks to the future, Sarah continues to focus on her core financial and operational business strategies:

• Using TruckRight's financing mix of factoring and traditional financing to expand to 20 trucks within the next two years
• Exploring the use of AI and machine learning for route optimization and predictive maintenance.
• Investigating the possibility of adding electric trucks to the fleet, leveraging government incentives and specialized green financing options.
• Considering joint ventures with complementary logistics companies to expand service offerings, using the company's strong financial position and market reputation as leverage in negotiations.

Key takeaways and lessons for aspiring trucking business owners

TruckRight's journey illustrates several important points about owner-operator financing and building business credit in the trucking industry:

1.  Non-recourse factoring is a growth enabler for trucking businesses

Invoice factoring with Cashway Funding provided the immediate cash flow necessary for TruckRight to stabilize its operations and fuel initial growth without the constraints of other business financing methods. A specialized and industry-dedicated factoring company like Cashway can do an excellent job of providing the flexibility and cash flow a business needs in it's early stages of growth.

2.  Financial flexibility is crucial for small and growing trucking companies

By using a combination of financing tools, TruckRight was able to address different needs at various stages of growth. Using invoice factoring to help build TruckRight's business credit without incurring debt gave Sarah the working capital she needed to obtain better terms with equipment lenders and banks as the business expanded.

3.  Financial flexibility is crucial for small and growing trucking companies

Sarah's approach of gradually diversifying TruckRight's financing sources as the business grew demonstrated the importance of developing a well-thought-out financial strategy that can help guide your new business through changing market conditions, business opportunities and changing needs - and the benefits of doing so.

Conclusion: Use freight classes to improve service & win more contracts

The case of TruckRight Express Inc demonstrates how non-recourse factoring can serve as a cornerstone for growth in the trucking industry, especially for owner-operators, small and growing trucking companies. By providing immediate cash flow, scalability, and risk mitigation, factoring with Cashway Funding enabled TruckRight to overcome common industry challenges and establish a strong foundation for long-term business success.

However, TruckRight's story also highlights the importance of developing an evolving and diversified approach to financing for your trucking business.  As Sarah's company grew, the integration of various financial tools – including traditional loans, SBA financing, equipment financing, and lines of credit – allowed for optimized capital management and sustained growth.

For trucking companies looking to emulate TruckRight's success, the key takeaways are clear: start with flexible financing options like Cashway's non-recourse factoring accounts, continuously educate yourself about financial alternatives, build strong relationships with financial partners, and be prepared to adapt your financial strategy as your business evolves.

In an industry known for its tight margins and never-ending cash flow challenges, smart financial management can be the difference between struggle and success. TruckRight's journey from a single-truck operation to a diversified logistics provider serves as a roadmap for how thoughtful financial planning will help lead your startup trucking business to exciting new heights.