Seed investment targets carrier cash flow woes

Seed investment targets carrier cash flow woes

A soft freight environment is placing trucking companies in a precarious position and compelling them to look for technological solutions where they don't sacrifice too much to get paid earlier. Photo credit: Shutterstock.com.

Momentum continues to grow for tools enabling truckers to get paid faster amid a tepid freight environment that is stressing the cash flow of carriers. 

Freight invoicing startup BasicBlock is moving in that direction, saying Monday it landed a $675,000 seed investment to build a system to get truckers paid faster while helping factoring companies mitigate the default risk associated with single invoices or carriers that give too much credit to single shippers.

Using blockchain, or distributed ledger technology, the company envisions a tweak to the factoring process that it believes will aid carrier cash flow concerns while sacrificing less of the value of the invoices they sell. 

Factoring is a type of financial transaction where a company sells its invoices to a third party to collect the payment due on its behalf. The third party charges a fee for the service — from as low as a fraction of 1 percent to double-digits percentage-wise — in exchange for paying the company holding the invoice faster.

The factoring model is widespread in trucking, particularly among small carriers and independent owner-operators that require quick payment for cash flow purposes and don’t have the revenue to support a back-office accounts receivable and payable department.

BasicBlock’s model is also designed to increase annual returns for investors, whether factoring companies or non-traditional buyers of invoices, and reduce the risk they face from buying an individual invoice.

Blockchain-based quick pay

The platform, still in its infancy, uses blockchain as a mechanism to do two things: execute smart contracts between factoring companies and drivers and authenticate the identity, location, and veracity of documents, most notably the proof of delivery. Smart contracts are a foundational component of blockchain solutions.

Lincoln, Nebraska-based BasicBlock is essentially competing with established freight payment solutions providers and factoring companies. Those two models rely on trucking companies taking a discount on their invoices to get paid faster. Freight payment providers, such as US Bank, Cass, and TriumphPay, take a 1 to 2 percent cut of the invoices to pay carriers right away, while allowing shippers and brokers to hold on to the cash they would ordinarily need to pay their carriers for a longer period. Factoring companies take a higher percentage — anywhere from 2 to 6 percent.

Experts say the ability for shippers to hold on to cash longer is critical in an environment when their Wall Street valuations are determined in part by balance sheet liquidity. Yet, they also need to keep their smaller carriers in a healthy financial position by enabling them to get access to payments faster. 

“Trucking is a notoriously cash-intensive business, and all these expenses like maintenance and insurance and equipment debt needs to be paid out of pocket before they even pay themselves,” a freight payment provider told JOC.com.

Stiffer competition

The percentage that early payment and factoring companies take has come down in the last five or so years, the provider said, as competition and new business models have gotten more intense.

In that environment, BasicBlock said it plans to increase its investment into the technology so it can continue to reduce the price of the software for fleets and brokers. 

“Our mission is to be able to pay trucking companies quicker and more money,” BasicBlock CEO Taylor Monks said in a statement, adding the $675,000 investment will allow it to provide the software to carriers for a lower price than other faster payment options in the market.

Among the newer competitors is Fr8 Network, which is building blockchain protocols that allow drivers using the company’s application marketplace to be paid quicker while avoiding the use of factoring companies.

BasicBlock, meanwhile, has tied up integrations with major carrier transport management systems (TMSs) such as TMW Systems and McLeod Software, although Monks told JOC.com his system can integrate with any TMS in 72 hours.

The seed round was led by the factoring company Global Financial Group and was joined by high-profile investors Jenny Fielding, managing director at technology incubator Techstars, and angel investor Jason Calacanis.

Founded in 2018, BasicBlock’s solution is delivered by a mobile application for brokers and fleets that’s designed to streamline collection of paperwork from drivers as well as providing the quick pay option.

Contact Eric Johnson at eric.johnson@ihsmarkit.com and follow him on Twitter: @LogTechEric.

 

Comments

If you're interested in a fully integrated factoring and quick pay application, you should take a look at Truckl (truckl.io) as well. We leverage blockchain technology and are, in fact, the first supply chain application to use the technology for every single transaction instead of just being a pilot or beta. Truckl is available today and we offer much more than just payments. For example, shippers get real-time updates on freight movements, all parties in a transaction share documents and real-time updates and we strongly motivate carriers beyond pay-on-delivery.