Article originally published in the Wall Street Journal.
Supply-chain finance company FreightRover LLC has signed a $500 million financing deal with New York-based asset management firm Crayhill Capital Management LP, giving it more capacity in its business handling payments for trucking companies.
FreightRover accelerates payments to truck operators by buying their shipping invoices at 99 or 98 cents on the dollar, known as factoring. Using the company’s app, truck drivers can be paid as soon as they log into their phones and record their shipments, says Carlos Mendez, principal at Crayhill.
“It’s a very challenging place for the little guys to access capital,” he said.
Mr. Mendez said FreightRover will quickly be able to put the full $500 million financing package to work and then roll it over every 42 days, meaning the company could put almost $4.5 billion to work a year.
The service is relatively expensive, working out to an annual percentage rate of between 9.5% and 12% for the carriers. But the technology allows the operators to avoid waiting several weeks to get paid, reduces their paperwork and cuts the number of people they need to process invoices, said Eric Meek, FreightRover’s chief executive.
The Crayhill deal comes as shippers continue to struggle with finding trucks amid a booming economy. Shippers have been paying more to get their loads through the bottleneck created by increasing demand for trucks. Spot van rates measured by DAT Solutions LLC were up almost 20% in the past year to $2.14 per mile in August, the highest August average on record, from $1.79 a year ago.
Meanwhile, companies are taking longer to pay suppliers, including trucking companies. The 1,000 largest public companies in the U.S. took an average of 56.7 days to pay their bills last year, according to a study from consulting firm Hackett Group Inc., up from 53.3 days in 2016. That was the longest average payment term in the past decade, according to the study.
According to the U.S. Department of Transportation, there were just over 700,000 private carriers registered with the Federal Motor Carrier Safety Administration, and almost all of them operated fewer than 20 trucks.
FreightRover hopes the service will be attractive to small operators who want to get paid quickly and avoid investing in back offices to process invoices. Their participation can lure large companies who don’t want to lose capacity to competitors willing to make quicker payments, said Mr. Mendez.
“If a trucker has a choice between companies and one pays faster than the other, they’ll go for the quick pay option,” said Mr. Mendez.
FreightRover has lined up deals with shippers including packaging manufacturer Berry Global Inc. and freight brokerage Transportation One, and is talking to other Fortune 500 companies, he said.