Factoring Companies

What you are describing is "non-recourse" factoring. Don't be fooled into thinking you are 100% protected. If an unpaid invoice doesn't meet the factoring companys' definition of "non-recourse" it will be charged back to you. A slow pay or no pay broker does not meet this definition.

There may be nothing alarming in the contract you signed, other than giving them permission to file a UCC-1 with the county/state where you reside. And the devil is in the UCC details.

Factoring is a bad deal. Period. A 5% fee works out to 60% ANNUALLY. Las Vegas loansharks don't charge that much. It could easily amount to 15-20% of your annual profit, without offering you the protection you THINK you have.

 

Thank you! This is what I was wondering about. With what you've just said you'd be smarter to be leased on to a company and lose 25% and not have to worry about the factoring company coming after you.

 

This is not true. It is not compound or simple interest. It is a flat fee per transaction. If you present 100k in invoices over the year you will get 95k in payment, not 40k.

I also agree that factoring is to be avoided if at all possible. There's lots you could do with that 5k.

 

5% per load on factoring sounds like a fair deal, if the contract is solid and they don't turn every other shipper down. I've been looking into factoring vs. L/O lately and trying to figure out the best way to get work.

Considering L/O with Panther II, and for loads you find, the truck gets 85%.

Also considering L/O with RoadRunner, they charge 4% on outside loads.

If I can find a stable factoring company, it may be the kick I need to get my own authority and start running my own show. It'd be a good deal to run my own way!

 

I pay 2% if I want it today. It's a very good offering, but it's in-house factoring with the company I pull for and they have established relationships with all of their receivers/buyers. It is also no-recourse. If you can find that, you'll be doing ok.

 

You're not figuring it correctly.

You are paying 5% to get your money now, as opposed to getting it in 30 days if you DIDN'T factor. The factoring company is LOANING you the money for 30 days. 5% x 12 months = 60%. The formula looks like this:

Factoring rate x 12 x your average receivables balance= APR.

In your example, $100,000 would represent $8300 a month in receivables.

5 x 12=60%. 60% x $8300= $4980. The gross amount you factor during a one year period is irrelevent because each transaction is for 30 days.

Many people overlook this and think they are getting a good deal. A 5% APR looks like a great interest rate.

Trust me- Factoring companies are not that charitable.

 

I don't doubt that there are factoring companies out there trying to do it as a loan with an APR... but good work if you can get it. That's not the norm. It is a FLAT one time fee and they earn that 5% by waiting on it. That's their business model, not yours. Anyone doing it differently should not get your business.

I will comment though that very few of the mailer offers I've seen are as low as 5%. Usually it's twice that, but it's still flat.

 

HDD - I don't mean to sound like a school marm - but you're a high desert dweller and you mis-spelled Mojave Desert on your location.

I used to ride motorcycles out near Randsburg and California City back in the day, and was stationed at Fort Irwin (NTC) near Barstow, I'd heard the area has grown some.

I'm getting lost on the factoring formula you cited. You've got a 12 month APR listed, but aren't these fees strictly transactional? You find the load, get it approved from the factor, run the load, turn in the bill, and they pay you minus their cut. There is no "time loaned" to calculate, as this is them purchasing your bill to collect.

Factoring still looks good to me when times turn rough, or just starting out. Thanks again.

 

Kudos for catching that, HwyPilot. You are both correct and incorrect. The name "Mohave" was derived from what the local Indians called this area years ago. "Aha Macave" means beside the water, and was transformed to "Mohave" by white settlers. Many longtime locals still use the traditional spelling, and a number of areas along the Colorado River still use the "h". Fort Mohave, Mohave Valley, etc.

Yes, the fees you pay are per transaction. The formula I posted converts those accumulated fees to something more familiar to everyone- an Annual Percentage Rate.

You have to remember that a factoring company is nothing more than a lender. They are holding the Bill of Lading as collateral. They are lending you the amount you charged your customer (minus their fee, of course) to haul the load. You are not applying your term "time loaned" properly. You have to apply "time loaned" to when you would get paid by your customer if you DIDN'T factor, which is normally 30-40 days

You are better off if you put an extra $10,000 in your reserve account, and pay those fees to yourself. If you deposit a 5% fee for every load you haul, and bill $100,000 in a year, your $10,000 is now $15,000. A 50% interest rate! I know of no other reasonably safe investment with that kind of return. This is why I hate factoring companies.