This interview is about factoring and more. We met with Charles Sheppard, Ken Judd, executives of Accutrac Capital Solutions and Denis Gourski, Director of Greenfield Capital Group in Accutrac’s office in beautiful Orillia, Ontario.
DorogaRoad: Please tell us about your company and factoring in general.
Charles Sheppard: Ken and I both have a transportation background. We met a few years ago, and decided to start Accutrac Capital Solutions back in 2007 specializing in transportation. We have been steadily growing ever since, with 95% of our customers in the transportation space. I guess what sets us apart from our competitors is that we take a little bit of a different approach to our customers, not just looking at financing them, but looking at financing as well as helping them out in operations, or any other needs that may arise as a result of their challenges in transportation. So very much we offer financing but our real resource to our customers is many levels, from finance to operations, to making decisions on purchasing equipment, and coming up with fuel programs and such kind of things.
Factoring is a form of finance that is employed very commonly in the transportation business, whereby instead of a company invoicing their customer and waiting 45 – 70 days for their money, we will purchase that receivable from them and fund that receivable immediately. So we will advance for most transportation companies up to 90 % of the value of the receivable. And then we charge a fee for that based on a daily rate. So depending on how long it takes for the receivable to be paid that is what determines the cost for our services. That is a bit of a background on our company.
DorogaRoad: What criteria you use when you select a trucking company to be your client?
Charles Sheppard: We look at pretty much any company, what we are concerned that is making sure that they are running a good operation, that they are honest people, that they are good customers, and I guess that they are trying to stay in compliance with rules and regulations as much as they can. For our situation, we are more concerned with the receivable itself: who is the receivable for, who is paying the receivable and that is really how we evaluate things. We only deal with people we trust. We like to meet people, look them in the eyes, and get the sense, whether they are trustworthy individuals. And we like to do business with people who we can see a long-term relationship there. And that is pretty much, how we do business.
Ken Judd: I think the keyword is trust.
DorogaRoad: It is like in any other business, actually.
Ken Judd: Like in any business, but a lot of businesses aren’t relying on trust.
Charles Sheppard: If you go to the bank for financing, they are going to rely mainly on your income statements, balance sheets, financial information; they do not want to hear the story. We want to hear the story, we want to understand who we are dealing with as a person and that is, how we base most of our decisions on that rather than on anything else.
Ken Judd: Yes, we are less concerned with the balance sheet, how many assets they have. We are more concerned whether they will go to work every day and work hard.
DorogaRoad: What information do you need from the trucking company to begin the accounts receivable funding process?
Charles Sheppard: We have to get a credit application, just a standard sort of information, any receivables listing, what we are buying, from there we would like to see if there is any financial information for the business, are there tax returns, a financial statement.
DorogaRoad: How long does it take to receive the first funding?
Charles Sheppard: It takes usually 2 to 4 weeks. We could say it takes about two weeks from the date we have all the information and the customer has agreed to move forward.
DorogaRoad: Is there a minimum dollar amount on the invoice you are ready to deal with?
Ken Judd: No, we don’t have any minimums. We had some customers that do 25 and 40 dollar moves. And they do a lot of them.
Charles Sheppard: We deal with one-truck and forty-truck companies.
Ken Judd: And well beyond forty.
DorogaRoad: Do you offer cash advances?
Charles Sheppard: It depends what you mean by that. You give us an invoice – we give you the cash, you have it the next day, so it means it is a cash advance. Do we lend above the invoice, – we don’t. However we fund immediately. So if you give us a $1000 invoice today we will give you $900 tomorrow.
Ken Judd: Actually, if you give us a $1000 invoice today we will direct deposit the funds to your account today but over night they are transferred in. So there is generally a turnaround time between the times that you make request for the funds and the time that the funds are actually in your account.
DorogaRoad: Do you check credits for prospective clients of your customers?
Charles Sheppard: Yes, we do. Our clients have the ability to ask us for a credit check on any prospective customers that they want. We have access to our data, which is quite extensive, as well as to external sources of credit information. So we do share this kind of information with our customers.
Ken Judd: Quite often from a practical standpoint somebody will book a load because there is so much stress in the industry right now to find freight. Client will book a load, actually have it in motion, then call us and request a credit check before they deliver the load to ensure that their customer has a decent credit. If not, sometimes the trucking company will do what they can do – exchange the freight for cash.
DorogaRoad: How your customers could be sure that you are treating their clients well.
Charles Sheppard: Everything we do is very professional. We are not a collection agency. We act as an extension of our customer’s company, as if we were employees of theirs. So we phone and follow up on invoices that are due to them, find out when invoices are scheduled for payment, make sure that all of the notes as it relates to scheduling are in the system, and treat their customers very professionally. We don’t have any strong-arm tactics that we use to try and collect funds; we don’t act like a collection agency. We call and say: your invoice is coming due, do you have it? Is the paperwork OK? When the cheque is scheduled?
It should be noted too that we have an online system, so all our customers can log on, look at their account, see all the invoices that are due to them, or due for payment, as well as take a look at the notes that all our customer service account executives have put in the system. So we definitely take the professionalism as a very important aspect of what we do. There is a lack of freight out there today for trucking companies and the last thing we need to do is upset one of our customers or their customers.
Ken Judd: In an almost of a 100% of the cases we have replaced our customers’ accounts receivable departments. It offsets some of their costs – if you are paying a full-time clerk to chase accounts receivable, one day use of our service, and you no longer require this clerk, so this generates cost savings in the company. And we also find that there is some call reluctance among owners to chase their own invoices, because they are constantly on the sales side of the equation looking for business. While we have 1680 debtors in our system right now that we are actively dealing with or have dealt with in a recent past. Our staff regularly communicates with these people, not just by phone but by e-mail, by the preferred method that the debtor wants the communication to happen. We’ll take a portfolio that will be aging 60 plus days, and we will get it down to 45 days within a few weeks of just doing the follow-up that has not been done in the past.
DorogaRoad: How does the current tough economic environment affect your business?
Charles Sheppard: It creates a big demand for our services. The economy in general has affected transportation companies. So as a result to that transportation companies are not as successful as they were before. Add that fact to a credit crisis. Banks do not want to lend money, and they certainly do not want to lend money to companies that are struggling, which puts a big demand on our services, because we help companies that are struggling, and we finance companies that are struggling. For us the biggest challenge is not having enough hours in a day. From a recession standpoint, it is creating more demand.
Ken Judd: I would say we are on both sides of the equation – increased demand and increasingly tight credit market.
DorogaRoad: When will the economy turn around and the crisis be over?
Charles Sheppard: For our business or in general?
DorogaRoad: For both.
Charles Sheppard: For our business – the factoring industry itself has been around for centuries – the concept goes way back to Roman times. There always going to be businesses that need help from some financial basis. I am not the biggest fan of the banks. The banks, as Ken saying, will give you an umbrella when it is perfectly sunny and when it rains, they want to take the umbrella away. There are lots of companies out there that will never get enough credits from the banks. Transportation industry in general requires a great deal of capital to operate. You have to borrow money to buy a truck, you have to fund your receivables, pay your gas, upfront in cash. You have to pay your drivers. So you have to pay all those costs immediately. It takes a lot of money. Reality is that banks do not want to provide that. So even when it turns around, we will run into a different problem: excess capacities have moved out of the industry, and then all of a sudden the companies that are left afloat are going to have this big demand. In order to meet the demand, they are going to need a lot of cash to run, and the banks are not likely to give it. It puts a lot of pressure on our services, because we also deal with high growth companies that simply do not have enough capital to meet their call for growth. So from that standpoint the business we are in is somewhat resistant to recession.
Speaking in general we have seen at least a 30 % drop in overall volumes from a freight standpoint. We are starting to see some life. For instance, Chrysler recently announced that it’s coming out of Chapter 11, and all their dormant plants are going to be fired up again. I suppose that something similar is going on with GM. When all that happens, the supply chain starts back up again. I suspect that might have happened within three or four months. But it’s just my guess.
Ken Judd: Right now we need to revive consumer confidence, and the media have scared consumers to the death, including myself.
Concerning the trucking industry, I know that the tonnage is down to 22 %. Bankruptcy rate is going up substantially. There are some data being provided on a number of trucks that are going off the road.
Charles Sheppard: I’m more optimistic than Ken, because I know it’s always dark just before the dawn. When you see the unemployment peaks it usually means that at this point in time we are out of recession. It peaks: the economy does this and then it starts to recover and unemployment is still high until the economy recovers and unemployment drops again. Because we are seeing the unemployment numbers starting to peak, likely we already started the way out of the recession. When you take a company like GM and Chrysler and take it out of the equation for a period of however many weeks, there’s going to be a certain rebalancing in a market. There will be inventories that will be dropped down. Then people start working again, demand starts to increase. There are a number of different positive things that happen. However, that’s just an opinion.
Ken Judd: Well, the leading indicator for the trucking industry is the rail, and the rail hasn’t come back yet. So until the rail turns around, tonnage goes up on rail, then tonnage will go up on trucks again. But the US economy is going to be a slow fix. We are going to feel it for a while. I have not seen much turnaround there yet. I have seen some bankers that want to pay back some loans to the government so that they can get bonuses, but I have not actually seen anything as far substantial as growing number of a gross domestic product.
DorogaRoad: What else you can say our readers about factoring?
Ken Judd: Factoring is not always a long-term solution for a trucking company. We have helped trucking companies that have been startups, and we see them running very profitably, and they are not using much of our money anymore, and will soon be away from us. We have done that several times in a past, we have helped companies get themselves to the point of stability, and we can clearly see that they will not be with us forever. It really makes us feel that it is a positive note in our business.
Charles Sheppard: Reality is that factoring is a convenient and easy solution. Sometimes convenience is well worth an additional cost. The bank requires you to perform these calculations every month, to make sure that everything is up to date. Just a cost of complying with their cheaper money – if you add up these costs you will find that the solution we offer is a long-term permanent one. I believe that factoring is not necessarily a negative thing. Yes, it is more costly, but for the cost we remove from an organization; people do not have to have accounts receivable staff. They get their money quicker; they do not have to worry about hiring an accountant internally to send information over to the bank every month. So there are a lot of different things that we save in a way of costs that are factored into. So even if it is more expensive than say a bank line, we are not really if you factor in all the costs.
DorogaRoad: Would you like to introduce Denis Gourski and his company Greenfield Capital Management?
Charles Sheppard: Definitely. Denis approached us with regards to come up with some special pricing for the Russian community, specifically. Denis is our representative in the Russian community. What’s really important is what we are actually bringing to the table is that we are cheaper than all the other alternatives. And that’s what we are really promoting is cost savings.
Ken Judd: Denis can help us a lot with communication, by helping us to get in front of the people in the community, get both sides a comfort level in communication. We need to trust our clients, and they need to trust us, that we are working in their interest, because it’s not in our best interest to let the receivable go for 90 days. It’s in our and our clients’ best interest to collect in 45 days. When everyone’s interests are aligned both parties win. Denis’ proposal is that he can bring a group of companies to us that we would not have access to. It is cost savings for us – we don’t have to spend time to try a market in that area ourselves. And we would be able to have good communications. We believe Denis can bring large benefit to us.
Denis Gourski: Charles and Ken perfectly described my mission in this group. I am glad to work with such a great experts in finance and in transportation, and I am thrilled to offer to our Russian trucking professionals all range of benefits that cooperation of Accutrac Capital Solutions and Greenfield Capital Group is about to provide.
DorogaRoad: Thank you for the interview, gentlemen. Accutrac Capital Solutions toll free number is 1 866 531 2615 1 866 531 2615 .