Hotshot and Box Truck Businesses: 6 Ways to Address MCA Payments and Receivables Timing

If you run a hotshot truck, daily debits don’t fit your cash flow, and payment reconciliation isn’t straightforward when brokers pay you in 30 to 60 days. There are six things you can do. Get your broker’s payment records, and ask in writing for a lower payment (reconciliation). Find out whether your factor or the funder has first claim on your receivables. Don’t take a second advance to pay the first. Talk to a lawyer before moving your bank account, and negotiate a settlement.

When the truck takes off on day one, somebody pays the driver. You fill the fuel tank. If it’s a lease, you make the payment. You get the tires checked and maybe put fresh brakes on. That’s all paid up on day one. About 30 days later, maybe 60, the customer or broker pays you. By now you have given up hoping for a fast payment. This is the way it is. That is why small carriers get “advance payments.” If you took advances from more than one source, they could all have claim to that payment. You will feel like you are taking on water in a small boat, because you are.

The Broker’s Payment Records

The first thing to do is to get the broker’s payment records. Don’t skip this step. Call the broker and ask for its payment record of every payment made to you. It is your right, not a favor from the broker. Federal rule 49 CFR 371.3 says the broker must keep a record of each transaction for 3 years, and you have the right to review it. This must include both the freight charge collected and the date they paid the carrier. In addition, by federal rules, the carrier has 7 days to present its freight bill, not counting weekends or holidays. The default credit period is 15 days from the day after the bill is presented. A tariff credit period can’t be longer than 30 calendar days. Always have documentation of the original payment due date to show the funder.

Second, ask the funder in writing to reconcile. The payback, in the agreement, often states that if receipts fall, payments should fall too. This is the point when an MCA supposedly shares the risk. When you do this, as mentioned, use the broker’s own records of when they paid you. Quite often, the funder ignores or denies your request. Keep every time they say they don’t lower remittance. That’s good evidence in court.

There’s a second reason to ask for reconciliation, even if the funder ignores or denies your request. What the reconciliation does is leave a trail. Courts are mixed about whether an MCA is a real receivables purchase, or a disguised loan. One important criterion is whether the reconciliation works, which shows you were not locked in to a fixed repayment. So, show every time you asked for the adjustment and got nowhere.

A Superior Claim

Who owns your receivables? The day you signed your factoring agreement, the company probably filed a UCC-1 with your secretary of state. You can reasonably expect a funder that finds itself in second place to ask for a subordination agreement. Don’t sign one without taking it to a lawyer to compare to your factoring contract. Before the funder contacts your factor, you should explain your payment problems. You don’t want to be the last person to find out that they already talked.

Sometimes a funder sends a letter to your brokers telling them to pay the funder, not you. Under the law called UCC article 9, once a broker gets a notice of assignment it can’t settle the account by paying the carrier any more. But sometimes the carrier’s factoring company holds a superior claim.

New Advances to Pay Off Old

I want to hit home the point that an advance was never designed to get your previous advance paid off. Take a $2,950 debit every business day, or about $62,000 a month before even one gallon of diesel. When rates drop or a truck breaks down, that math stops working. A lot of what is called consolidation, isn’t. It’s just getting new advances to pay off old. Sometimes it helps if the new paperwork reduces the total cost. Find a lawyer and get them to look at it.

A lot of carriers are tempted to solve the problem by getting their bank to stop ACH debits, or changing their bank accounts. Moving your bank account or revoking ACH will usually stop the debits temporarily, but under most MCA contracts it is an event of default. That can be when the funder wants the entire amount, not just the debit, because under the agreement you fell into default. I don’t want to encourage anyone to stop paying a funder, but two very important things have to be done before you do that. One: Send in writing your demand for adjustment based on the broker’s payment records. Next, go talk to a lawyer.

Finally, you can try to negotiate a settlement. Payments to an MCA company can be lowered in many cases. If the whole thing goes in the dumpster, the funder won’t get much. A good settlement offer comes with documentation of denied reconciliations. You should be looking through all the various advance agreements, not one, at the start of a settlement. I would look at every one, the reasons being that every deal you make with one party can have an effect on the other companies involved.

Many businesses who factor their receivables consider a Subchapter V as a last resort. When you enter Subchapter V, almost all collection by the MCA has to stop. You can’t do Subchapter V if your total debts are more than $3,424,000. Receivables factoring often stops soon after filing.

The sooner you act, the more options you have. A carrier current with payments has more options than one in default. One in default has more than one facing a judgment. Your options can narrow fast. The goal is to turn a bad situation into a less bad one.