Factoring...

Shouldn't someone have plenty saved after years and not have to use factoring services?

How much more money could you have now if you didnt give up the $5 per $100 in revenue over the course of 5 or 10 years trucking?

 

its worth the 5% to not have to invoice and keep up with who owes who...more things to do than wrangle a broker or worry about money...smiles

 

Oh young grass hopper...

That’ll suck if one day that 5% would be the difference between going broke or keeping trucking. Or buying a new truck vs running one with the brakes beat off it. Or expanding your business vs not being able too. Good luck.

 

There are cheaper factoring rates out there. I don't see giving up 5% when you can get 1.95% ..... non recourse.

 

I don’t know Shain personally but I follow a lot of his advice. His name is Shain Ferriss owner of GreenMiles trucking . Here is the way I approached factoring . I also talked to a factor company at the Dallas truck show and the contract scared me to death!! The following was written by Shain Ferriss I believe Shain has updated this a little bit since I copied it but this is the method I used when I first started.


Avoiding Factoring


You do not want to factor a carrier that is grossing less than $20,000 a week.

Factoring a micro carrier is tantamount to taking payday loans. You are paying way too much and getting very little in return.

You are so much better simply utilizing broker QuickPay rather than factoring in the infant stages of a business.

1. Often, you can negotiate QuickPay fees to be added to the rate

2. Once a broker pays, the deal is finalized. With factoring, you still have the risk of a chargeback. (There is no such thing as non-recourse)

3. Factoring companies place a UCC filing (lien) on everything you own.

4. Almost all factors lock you into a contract that is difficult to get out of.

5. Once you decide quit factoring, it basically takes an act of Congress to get your customers to stop sending your money to the factoring company.


You can run your business without FACTORING.


Try this. I’ll base it off of $5000/week ($20,000/mo)


MONTH 1: Quick Pay 75% of your freight.

$15,000 for operations $5000 to carryover


MONTH 2: Quick Pay 50% of your freight.

$10K + $5K from month 1 = $15,000 for operations

$10,000 carry over


MONTH 3: Quick Pay 25% of your freight.

$5K + $10K from month 2 = $15,000 for operations

$15,000 carry over


MONTH 4: Quick Pay 0% of your freight.

$0 + $15K from month 3 = $15,000 for operations

$20,000 carry over


MONTH 5: Quick Pay 0% of your freight.

$0 + $20K from month 4 = $20,000 for operations

$20,000 carry over


Chances are that you will gross more than $20,000/mo,

And you can stretch it out 1 more month by doing 20% increments, but conceptually it’s a very workable plan, and in just a few months, you will be cash flowing your full operation.


FACTORING — let’s use 4% for this explanation.


First, let’s understand the actual cost of factoring.

If you gross $240,000 in a year, this is the break down

$20,000 X .04 = $800 January

$20,000 X .04 = $800 February

$20,000 X .04 = $800 March

$20,000 X .04 = $800 April

$20,000 X .04 = $800 May

$20,000 X .04 = $800 June

$20,000 X .04 = $800 July

$20,000 X .04 = $800 August

$20,000 X .04 = $800 September

$20,000 X .04 = $800 October

$20,000 X .04 = $800 November

$20,000 X .04 = $800 December


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That’s $9600 in factoring fees. You have paid 4% of $240,000

But you never actually borrowed $240,000.

You borrowed the same $20,000 twelve times.

You paid $9600 to borrow $20,000 for a year.

If you went to a bank and borrowed $20,000 for a year at 12% interest, you would pay $2400. That’s a $7200 savings.


ON TO THE NEXT FALLACY OF FACTORING


“It saves you from having to pay $60,000-$80,000/year on a full time A/R person.”

This is just complete horse hockey.

It takes about 30-45 minutes a week per truck to invoice and make collection calls.

So, if you have. E 2 trucks, this would amount to 1-1.5hours work a week.

If you want to pay someone $1000/hour to handle your A/R, I AM AVAILABLE.


FALLACY NUMBER THREE


“The Factor reduces risk”

Again, NOT TRUE.

If your invoice goes unpaid, the factor will charge you back the full face value of the invoice. You not only lose the money from the load, but you still pay all factoring fees on it also.

“Non-Recourse” is another con.

In reality it affords you no real protection. The contracts are written that the factor only assumes liability if the customer/broker files bankruptcy within 30 days of you booking the load. Sorry but this just doesn’t happen. Companies take months or even years of getting more & more behind before they actually go under. The factor will “no load” a shipper/broker long before they ever go bankrupt.

You can get the same protection simply by looking at the TransCredit Days to Pay report. Or payment history on DAT. If DTP is trending upward, don’t load them.


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Money is "bought and sold" for specific blocks of time.

You buy a house on a 30 year mortgage that is a specific blocks of time. You buy a truck on a 3 year note that is a specific blocks of time. Both of those types of loans are priced at an APR.

The assumption is that brokers pay in an average of 30 days (some more, some less so ave. 30 days). So when you factor your invoices you figure your block of time as 30 days.

Now, you must convert to a consistent block of time to compare costs, t's just a law of math.

When you convert your factoring fee to an APR, that's how 4% becomes 48%.

Do you have a credit card? If so, look at the statement. Somewhere on that statement it will list their interest rate. It will say something like 2% on any balance over 30 days for an ANNUAL PERCENTAGE RATE of 24%. It's exactly the 0 time factor conversion that factoring is.

If you think I am wrong. Then so is every credit card company that has a that statement on their bill wrong also? You simply can't dismiss the "TIME" involved when figuring the cost of money.

 

Add up those factor fees over a 10 year period its absolutely mind blowing. You could retire a couple years early if you didn’t factor.

 

My personal opinion is that anyone currently needing to take out a loan to get a trucking business started is digging their own grave...