Can Someone Explain Factoring? How Does Factoring Work?

Discussion in 'Ask An Owner Operator' started by dynogt16, Nov 26, 2014.

  1. dynogt16

    dynogt16 Light Load Member

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    Can someone explain factoring? How does Factoring work? What are some factoring companies to work with? Just considering some options. thanks in advance.
     
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  3. steaburn

    steaburn Bobtail Member

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    You haul your load. You send invoice and all backup to your factoring company. Factoring company purchases your invoice at a discounted rate. You receive between 80-95% of you invoice same day (or next day or day after depending on factoring company). Debtor pays factoring company. They take out their fee and pay you the rest of your money, typically on a weekly or monthly basis. Message me if you have any other questions.
     
  4. Big Lou

    Big Lou Light Load Member

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    I have found a great Factoring company finally. They pay me within 24 to 48 hours depending on what time i send them the invoice. They take out a flat 5% fee keep track of all invoices. Also give you discounts at fuel stations for diesel and alot more perks. I have dealt with a few and by a long shot this one is excellent and worth looking into. You get all your upfront except the 5% fee, It is called Triumph Business Capital. The lady who I deal with is Darlene R. Tell her Anthony told you to call she will explain everything in detail. It was the best thing I did for my company.
     
    Last edited by a moderator: Nov 27, 2014
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  5. icsheeple

    icsheeple Trailing the Herd

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    Double Yellow nailed the factor argument.
     
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  6. Skate-Board

    Skate-Board Road Train Member

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    www.dsfactors.com is the best from what I've heard. They take 5%. A friend of mine uses them. You can email, fax or use their smart phone app to send in your signed BOL. He gets direct deposit into his checking account by 7am EST the next day.

    I have his account number and password. They have the most extensive credit check feature on brokers that I use.
     
  7. RedForeman

    RedForeman Momentum Conservationist

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    Not really. The description about interest rates is excellent, and most of it is ok. At least from a person that has never used a factoring company. The problem I have is the leading assumption that everyone that uses a factoring service is irresponsible and has a troubled business. There's plenty of them (irresponsible, troubled businesses) out there to feed that line of thought, but it's not an absolute. With my own agreement for going on four years now, it boiled down to paying them instead of a part time a/r clerk on my own payroll. More about that later.

    Steaburn gave the best dictionary-style description of what is factoring. That is it. What this audience can't tell the OP is what sort of deal will be a fit for their business needs. Factoring companies are in the service business. Obviously short term money is the main service offered. Then there's a host of other value-adds, depending on the vendor. OP will need to carefully consider if all of that adds up to a value for their business.

    Here's RedForeman's tips on what to watch for:

    If the offer is focused on how fast you get your money, look out. They are marketing to companies that need fast money, and probably have a lengthy list of things you will pay additional fees for. Along with a hard to meet contract criteria to not get into "default" status. More on that later, too.

    Read the agreement. All of it. Watch for links to websites for more terms and conditions. Print them out or at least save as a pdf in case something changes. If it reads like a payday loan agreement (I like to call this the timeshare language), run away. It should read more like a credit card agreement. Credit cards don't create unlimited power of attorney on everything you own. Legitimate factoring companies don't do that either.

    Pay extra close attention to sections describing your obligations and deadlines, along with the corresponding section describing default conditions. Know without a doubt what you are expected to do in this arrangement, and especially what would cause a default and what will happen with that. This is crucial. These are always going to favor the factoring company. You will be under the gun to meet requirements. One slip on your part, and they are completely off the hook. Time does not matter to them, and in the mean time you are hung up with unpaid receivables and customers you really can't serve with any expectation of prompt payment. Or any payment. The assignment means that it's against the law for them to pay you directly. Yeah, it's that bad.

    Understand that agreement. If there's something you don't get, ask about it. Or hire someone to explain it (attorney). Otherwise, just don't do it. Move on.

    Any factoring agreement brings a great deal of risk to your business. Period. No matter how strong your finances are. You are effectively selling your cash flow to a third party, one customer at a time. Anything gets sideways in your business with them, and that river of fast cash flow can instantly turn into a dry wash. It can be a simple misunderstanding. A bogus cargo claim. Anything. Then suddenly you have done (already bought the fuel, paid the driver, etc) a lot of work and payment is blocked. Under the right circumstances, this could easily put an otherwise solid business right into bankruptcy in just a few weeks.

    So what. On the plus side, my agreement has worked great over the years. Exactly as I expected. There have been no surprises of any consequence. Mainly learning moments of my own. Walking in with over 10 yrs of business experience and a degree from Georgia State (with honors), I thought I knew what I was doing. Well, there were a few details I needed to learn. Fortunately it had to do with details about the freight transaction and that got sorted without too much fuss.

    At the same time, my hopefully still good friend DannytheTrucker, had possibly one of the worst experiences I've heard of, with the same outfit. Regrettably a result of my recommendation. He had some different learning moments that put him into the dreaded default mode. Nothing criminal. Nothing terribly difficult to work out. Simple handling issues as I understood. But default is what it is, and the friendly business partner left the scene and a brick wall went up. It took him about a year to untangle from them, and still has an issue crop up now and then. The fact that he had a sound business led to this not being the end of it.

    For this reason, I no longer name them in my posts or recommend them. It also led me to accelerate the timeline I had already laid out to stop factoring. That is, despite my own positive and ongoing experience with them. For three years, managing receivables was hands off. For the price of a part time employee, I had a round the clock collections team working for me. No watching for checks in the mail, and only needed to make 2-3 calls a year on customers paying too slow. However, my business needs had changed over the years, and factoring wasn't giving me the value it did earlier on. Far fewer customers that were far better at paying on time. Nonetheless, Danny's experience showed sufficient bad faith that I was encouraged to get off the hook faster than planned.
     
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  8. Starboyjim

    Starboyjim Road Train Member

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    "Death spiral." Nice phrasing, happens to so many people.
     
  9. Big Lou

    Big Lou Light Load Member

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    I just noticed that someone just edited my post??? Why would someone change what I was saying to try to help out other's who might need help on some advice. Pretty sad.
     
  10. double yellow

    double yellow Road Train Member

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    As someone who has never used factoring, what services do they provide on the A/R front?

    As a 1 truck operation, I just use quicken home & business ($55) to create invoices, which, when filled out in advance, I can email or e-fax to the customer along with pod within minutes of delivery. Took a half hour to set up my invoice template, and for the individual invoices it just takes a couple minutes to enter the information for a new customer (less if a repeat customer) and about the load.

    Most larger customers use ACH, but many still do send checks by mail -- so that could be a benefit... Once the funds are deposited, a couple of clicks in quicken applies the amount towards the invoice. I can then take a peak at any invoices that are beyond the due date but for which I've yet to receive payment and, if necessary, make a call to ask what's up.

    All told, I spend maybe an hour a week on A/R, so my time would need to be worth $61/hour to make paying a company $3200/year worthwhile -- and that assumes I would go from 1 hour/week on A/R to 0 (which I wouldn't). Besides, I do most of this while waiting for dock lights to turn green...

    With multiple trucks I can easily see a point where I just wouldn't have the time. On the other hand, with multiple trucks I would also need to be dealing with payroll, which would probably require a part time bookkeeper & quickbooks anyway.

    So what am I missing?
     
  11. snowwy

    snowwy Road Train Member

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    happens sometimes. some people just feel the need to speak for you.
     
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