Quitting factoring

Discussion in 'Ask An Owner Operator' started by RedForeman, Oct 3, 2014.

  1. RedForeman

    RedForeman Momentum Conservationist

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    An update on the OP..

    A few weeks ago I decided to finally terminate my agreement with eCapital. If you haven't read all the way through, I had been coasting with a zero balance for a couple years, mainly to access their credit reports. Recently a segment in my regular run got lowballed by a mega, so I've been filling in the gap with spot market loads. It really wasn't a huge deal, but I was reconnecting with a few old customers that were still assigned. After holding invoices a few days and keeping up with that, while requesting releases on about three accounts, I decided it was time.

    That, and I'm considering some new equipment and figure having the UCC lien released might look better on any finance apps.

    After the last release got issued, I contacted my account manager and let him know I was ready to wrap it up. And to ask what I needed to do to get that process started.

    As promised some time ago, my account being inactive and in good standing earned me out of notification periods and penalties. And there's a lot of them, in any factoring agreement. Which is why I always tell people to study the default and termination sections in their agreements with a microscope. Preferably before signing to know what you're getting into, but at the very least before you get in any kind of a bind that might put you on an exit path.

    This process of divorcing my factoring company has been made hugely easier by not being under financial stress, and consequently under time pressure which usually comes hand in hand with being short on cash.

    So, a simple email notifying my intent was all that was needed. Release letters are going out to all remaining accounts. The UCC filing will also be released. No muss no fuss, and most importantly, no additional fees.

    If I don't see something in the mail in a week or two, I'll ask for a general release that I can use going forward. I fully expect a lot of the notices to not get received or processed. It's happened with several of the individual accounts. Especially on an a receivable account that may not have been active for some years. A/P contacts change, some have the notices going to a generic fax, or whoever opens the mail doesn't know what to do with it and just files it without changing my company information in their payables database.

    Having been through that, I usually get ahead of it by calling and talking with a payables person to make sure the notice is received by the right person and processed. Also to set up any new payable process that may be offered since the last time I did business with them. Usually that would be some sort of ACH payment option.
     
    SL3406, gokiddogo, whoopNride and 2 others Thank this.
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  3. whoopNride

    whoopNride Road Train Member

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    I don't know a lot about this, I have never used factoring. But I have a friend that got his authority recently, he needed to use factoring on a limited basis till he got on his feet. He decided to go with D & S, he said it was a simple 1 page contract and he could factor as much or as little as he wanted. Also said he could cancel at any time, but would have to pay a $100 fee. I have heard horror stories about trying to end a relationship with other factoring companies though.
     
  4. cliffster21

    cliffster21 Light Load Member

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    I'm sorry, but for new o/o factoring is a good way to keep cash flowing. I have seen this illogical APR at 50% argument time and time again and still don't understand. How can a loan of 30 days have an ANNUAL PERCENTAGE RATE? Each invoice you factor is its own mini loan of however long it takes the brokerage or shipper to pay, usually 30-60 days. The rate is usually around 5 %. If you invoice $100,000 and factor every single invoice, it will cost you $5,000. It doesn't matter if it takes you a month, a year, 10 years, a century. APR doesn't apply to this type of loan because you essentially borrowed money (or sold those invoices for a fee so you could have money now) many times to get to that 100k mark. It makes my head hurt when I hear guys on this forum trashing factoring companies over and over again without understanding how they work. Many industries use factoring all the time. They are not loan sharks, they are not crooks. I understand that some people have had a bad experience with factoring companies.

    If you are a new o/o or looking to get into this business and you need to use a factoring company, its okay. I have had my own authority for a little over two years now and have factored almost every invoice. I get paid every Friday and I never have to hunt down payments for the loads I've hauled, in my opinion well worth the 4% fee I pay.

    New o/o's don't be frightened by the negative posts of people with a major prejudice against factoring. If the equation works for you with factoring, use it. I have and have no regrets about it. I don't know if I will ever stop using a factoring company. I like the fact that I don't have to do accounts receivable on top of every other thing a small business owner in this industry has to do (maintenance, regulations, ifta, quarterlies and the list goes on).

    Sorry for the rant, but I find I am a little touchy on this subject and don't want people to misunderstand and not seize an oppurtunity to live their dream because the read negative, uninformed posts about factoring.

    Okay, I'm done :)
     
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  5. RedForeman

    RedForeman Momentum Conservationist

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    You should probably get used to it. The key is knowing what it really costs you as a percentage of profit. Rationalize it however you want, but $5,000 would buy a decent set of drive and steer tires. Or around 2,000+ gals of fuel, depending on where you're buying.

    The problem stems from the factoring company owning your accounts. If anything gets really sideways, they can shut down your cash flow. One big claim and they can hold all incoming invoice payments from all assigned accounts as an offset. In that case, someone like @cliffster21 (and myself, once upon a time) who factors every invoice, could be put right out of business, while someone else who isn't factoring could hold on that one account until the claim is worked out and keep making money elsewhere.
     
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  6. whoopNride

    whoopNride Road Train Member

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    Thanks Red, I hadn't really hadn't thought about that scenario, but it sounds like a real possibility. I will pass that info along to him.
     
  7. G/MAN

    G/MAN Road Train Member

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    There are pro's and con's to factoring. It worked for me at a time that I needed more cash flow but did not want to take on more debt, such as a larger line of credit or commercial loan. If you are interested in factoring I would recommend that you talk with several factors and get a copy of their contract. Make sure to read it over carefully. Not all factors are created equally. You should especially check the cancellation fees and decide whether you want to use recourse or non recourse. If there is anything in the contract you don't understand find a good contract lawyer to check over the contract for you.
     
  8. xsetra

    xsetra Road Train Member

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    I'll 2nd this
     
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