Are you involved in transportation finance and curious how the economics of Supply Chain Finance (SCF) work for a logistics company? Below is a use case of an actual logistics company and a conservative analysis of the benefits a SCF program would yield to the bank/ lender. In this use case, Truck Logistics (TL) pays several carriers that currently factor. SCF would allow TL to turn the tables and offer the discount versus the factor, which can be split between the lender and Truck Logistics.
Per Ansonia Credit Report dated 8/30/19:
- TL has 66 factors reporting monthly payment history
- Average days to pay is 38 days
- Average monthly balance is $1,408,806
- TL is currently paying the carrier’s factor and the carriers pay on average 3-5% of the face amount of each invoice they factor.
Supply Chain Finance option
If Truck Logistics adopts an early pay option to pay carriers in 3-5 business days, their SCF program could earn a fee of 1.5% – 4.0% of the face amount of each invoice paid early. Below is an overview of the process:
- TL and the carrier would not need to change their AP processes.
- Once an invoice is approved to pay, Truck Logistics would upload a CSV file with the approved invoices to ArtisPay (Artis), the SCF SaaS.
- Artis will email all approved invoices to carriers and offer an early pay option. The email and portal are mobile friendly.
- Additionally, for carriers that always want to get paid early, they can elect to receive payment immediately upon approval of the invoice.
- Once a carrier selects early pay, TL’s bank or lender would ACH the net funds (invoice amount less discount) to the carrier.
- ArtisPay creates a payment instruction file that is designed for large volume and is easily uploaded to bank or NACHA formatting software for mass ACH payment processing.
- Truck Logistics can revenue share in the discount on carrier invoices, thus making its AP a profit center.
- Carriers like the early-pay option better than factoring because there are no security agreements or personal guarantees.
- AP efficiency is increased because 66+ factors are not contacting AP to verify invoices or the status of payments.
- TL can push this out to all vendors — carriers, suppliers, etc.
- This model has been proven by Triumph Bank (TriumphPay) and Nolan Transportation Group (RhinoPay). Read about it here.
- Based on just the 66 factors reporting payments of $1,408,806 a month, TL could generate discount fees of $35,000 a month (based on an average discount of 2.5% which equates to 30% APR) or $422,000 annually.
A founder of Artis Trade Systems, Jamie Clemons, CPA, started his career working in business risk consulting at Protiviti after attending the University of Arizona on an academic scholarship where he graduated Summa Cum Laude with dual degrees in Finance and Accounting. During his time in consulting, Jamie served clients in various industries including Airline, Banking, Software, Pharmaceutical, and Education among others.