Quitting factoring

The payday loan comparison is not really that dramatic in terms of annualizing that 5% cost per receivable. Some of the factoring companies rates can have an APR of 60-70% or more if you do the math. Like others mentioned it can be a valuable service to meet your cash flow needs but it should be something your business can eventually ween off of going forward. If you do use the service at least understand your actual cost of doing business because the fee does not sound that bad until you annualize it out.

Since this is a margin-thin business keeping more of your gross revenues is the goal. If you were offered a credit card with a 50% apr you would immediatly say no thanks but factoring companies keep you listening by selling you on "95 cents on the dollar in 24 hrs". Payday loans are essentially the same sell. Short term and a reasonable sounding rate.....unless you keep coming back.....then it costs quite a bit annually.

 

What do you mean when you say annually? Wouldn't charging 5% with non recourse be only 5% no matter how long?

 

It means your hauling 1 in every 20 loads for free.Simply for getting paid in a timely manner when all expenses are "In Advance."

 

With 47 trucks how we use factoring is not relevant to most here but there are two pieces that need to be considered when looking at factoring.

First is collections. At least half of the fees that I pay would be used towards hiring an additional person for collections. And I don't have to worry about vacation, sick days, the person I hire being an idiot, etc. The headache is on my factoring company. Plus they have a team of collections people and most accounts want to keep a factoring company on their side as they all talk to each other.

Second is credit. Early on the amount I paid for factoring (I don't send everything in) was less than the cost of a good commercial credit program. The ITS/DAT programs are garbage. Now, I pay for a commercial credit service to augment my factoring credit check and they have saved me on more than on occasion in the past year from making a big mistake.

Yes, if you are using factoring as a payday loan then you need to look at your operation. But if you don't have a good credit policy in place a factoring company that does what they should (and they don't all do what they should) can pay for itself. It is a service that goes beyond loaning money on your invoices. Or, in our case, a service that allows me to grow without begging the bank every month of a line of credit increase because I want to add more trucks.

 

You may be better served steering your long winded responses towards coming up with a swifter payment system rather than defending and even encouraging a service which in all honesty shouldn't even be necessary if not for the fact companies like Wallyworld and the other big box retailers are simply so slow in paying. As I mentioned above,all truckers cost are paid "in advance" which makes it nearly impossible to deal with such but nearly impossible to avoid for shear numbers.

 

thought so

 

Back during the Jimmy Carter days, interest rates and inflation was over 20%. I was involved in a company where we had open accounts. We didn't sell direct to consumers. Our customers were distributors and retailers. Our terms were 2% 10, net 30. For those not familiar with the terms, customers could discount their bill 2% if they paid us in 10 days or less. Otherwise, they would need to pay in 30 days with no discount. We also offered free shipping on prepaid orders with a minimum order. There was one larger company that would not pay for 120 days. I called him and he said that is the way we have it set up on the computer. I told him that our terms were net 30 and he was getting our best pricing. Unless he could pay within our terms that we would no longer do business with him. He was surprised when we cut him off and refused any further business from him. I won't do business with anyone who can't keep their word. Using a factor pushes the responsibility of collections on a 3rd party. With inflation and interest rates as high as they were in the late 70's, manufacturers could not afford to have open accounts for extended periods of time. We were pretty much self sufficient as far as cash was concerned, but if we had to borrow, rates were very high.

 

As a new owner operator (waiting on authority), when it comes to factoring, what is the best company?

Unfortunately, as a new entrant, I'm not in a position to not factor.

Thanks,

Dave

 

I used D & S for several years. I don't know that I would recommend them since they change their terms. There are several factors that cater to the trucking industry. I would suggest you check with several of them and find one that works best for you. Rivera, Apex and TAB Bank all offer factoring. I don't know that I would recommend any of them. I have not used a factor for several years. There are two types of factors, recourse and non recourse. I prefer non recourse, even though the rate may be higher. With non recourse, you send the factor your bills and they send a check or make a direct deposit into your bank account. The factor has the responsibility of billing and collections. If the account fails to pay the factor eats the loss, not you. Read any factoring contract very carefully. Some charge extra fees and have minimums. When I was looking for a factor I wanted one that did not have a minimum, extra fees or forced me to send all of my receivables. At the time I had accounts that paid within a couple of days and there was no need to factor those loads. I would have my check before the factor could put money into my account and I would have had to give them 5%.

Many brokers offer a quick pay option you can use to get your money faster. Some charge as little as 1 1/2-2%. That is much cheaper than factoring.