Kimberly Fisk has been in the factoring business long enough to remember when factoring was known as the F-word.
But the growth that Fisk, recently installed chief operating officer at Triumph Financial Services LLC, has seen in her 12 years at Triumph is enormous. Triumph now purchases about 600,000 invoices per month for factoring. Five or six years ago, she said, “It was about half of that, because we have grown much more in size in the last couple of years.”
FreightWaves interviewed Fisk as she began her first full year at Triumph Financial Services, the factoring business previously known as Triumph Business Capital. It is part of Triumph Financial Inc., which last year also went through a name change from Triumph Bancorp (NASDAQ: TFIN).
Fisk’s appointment came a little more than a year after Tim Valdez moved over from TriumphPay to become president of the factoring group. Fisk mentioned him and said the group’s leadership is “reinvigorating our team to really have a client mentality first, making sure that we’re offering our clients exceptional customer service.”
The focus at the parent corporation, Triumph Financial, has been on its open-loop payments network at the TriumphPay division. But the reality is that in the fourth quarter, interest income at Triumph Financial Services was $35.4 million. At TriumphPay, total interest income was $12.9 million, though it was EBITDA-positive for the first time.
Although factoring is the purchase of a receivable, what’s been notable about the financial performance of the factoring group at Triumph is that the direction of the yield on its average receivable actually has declined in recent years, despite the overall trend in interest rates.
For example, in the fourth quarter of 2019, the final full quarter before the pandemic, that yield was 17.2%, according to Triumph’s earnings report. But in the 12 months of 2023, the quarterly average interest was in a fairly tight range of 13.59% to 14.07%, with the 13.7% of the fourth quarter not far from the 13.85% in the fourth quarter of 2022.
The interest rate on factoring loans, Fisk said, “used to be known as about the highest interest rate, and it’s not that anymore.”
Those kinds of yields may look incredibly rich from the outside. And maybe the fact that there are so many factoring companies suggests it is profitable enough to support an enormous base of lenders.
But as Fisk said, “It takes a lot of systems to run a factoring company. So it’s interesting when people get in, sometimes they turn around and want to get out.”
That average yield does not consist solely of the interest rate or “haircut” charged to the trucker. “You have your employee costs, if you have a referral partner that you’re paying, you have your cost of funds,” Fisk said. “There’s a lot of components that any factor would have to consider as far as what would be built into their yield.”
Triumph has tried not to get too far down in the pit by competing on interest rates as the market softened in recent years. “We’re really trying not to dive off the deep end,” Fisk said, though she added that competition has eased recently. “The markets are not doing that any longer, anyway, and I think a lot of people are feeling the same way.”
For emphasis, Fisk added: “We’re not in a competitive market where we’re going to drive down rates and fight over price. Triumph is going to make sure everyone understands the value that you’ll get from us and that we will maintain it.”
While the basic value proposition of factoring has not changed — a driver or fleet getting paid faster — what Fisk said Triumph and other factoring companies are offering to even larger fleets is what amounts to a shifting of some back-office operations out of the carrier and on to the factoring lender.
In the past, the individual drivers or small fleets that turned to factoring companies could often be described, according to Fisk, as “I’m not bankable so I’m going to go factor.” It was then in the interview that Fisk made the analogy to the F-word, and said factoring “had a stigma about it.”
“And now you see a lot of clients using factoring, even up to very large-size fleets,” she said. Among the advantages that the industry touts, Fisk said, is that factoring can “remove unnecessary back-office administrative stuff because we offer invoice presentment and invoice creation.” The carrier needs to present the initial basic documentation — still, in many cases, a scan of a paper-based invoice — but it greatly reduces the number of back-office personnel needed at the carrier, or the hours needed by the individual owner-operator.
No covenants in factoring
Another factoring advantage touted by companies like Triumph: less restrictive lending practices. Fleets that are tied to loans or asset-based lending will have covenants and other requirements on their finances that don’t come with factoring as a financing source. “A lot of these clients are comfortable with the services that we offer and not having those financial covenants in place,” Fisk said.
How a smaller factoring company can be successful if it doesn’t have the technological capabilities found at the larger firms comes down to personal relationships, according to Fisk. If a small-fry company survives without it, Fisk said, it’s likely because “you’re probably doing something well as far as relationships are concerned.”
Factoring is a highly fragmented industry. A company like Triumph has 300 to 400 employees, and it likely isn’t even the largest factoring company; RTS Financial generally is considered to be the biggest.
Given that fragmentation, factoring has long been seen as a financial sector ripe for consolidation, in light of the number of small lenders that may not have the competitive advantages that larger companies have (or might need to file for bankruptcy for other reasons.)
Nothing cooking on the acquisition front
But Triumph has not made any acquisitions of late and Fisk did not anticipate that changing.
“We’ve been really focused on our client experience, and we’re not really looking to build our balance sheet through acquisition,” she said. “We’re looking at our technology efficiencies and really spending time with developing our own people.”
(By contrast, Love’s Travel Stops, which did not make any acquisitions in its extensive factoring segment, may be looking to do so in 2024, according to a recent interview with Love’s President Shane Wharton.)
The technological efficiencies Fisk referred to have meant personnel costs should stay in check. “Instead of having to add head count, our systems can do a lot of the work for us,” she said.
The network system at the heart of the payments sector at Triumph Financial processes invoices mostly for brokers, but there are factoring companies (and some shippers) that use it as well.
Triumph CEO Aaron Graft has said multiple times that it is important that the factoring clients using the network won’t have their information shared to Triumph’s factoring group.
Fisk said Triumph Financial Services keeps an arms-length relationship with the TriumphPay network, to the point that not all invoices are processed through it. “It depends on what the network is offering,” she said. “Anywhere we can get efficiency through the technology, we can connect with it into our processes.”
She said the two groups within Triumph have different technologies and different technology teams. “So we’re very separated,” Fisk said.
