Different Factoring Question

Our target O/O is not going to be the one that needs his money overnight. A factoring company that is set-up to fund EVERYTHING within 24-hours is looking at 2-3% in overhead, not counting the cost of money. Because credit is such a huge deal, they need to have the staff available to process at peak volumes at all times. We looked at the books of one large known factoring company that is in trouble, not because of bad debt, but because of the overhead. If they fund $500,000 in a month then they are looking at making less than 1%. And when you looked at the operation you could improve some processes but that would require addition investments to get that to 1.5%.

We plan on charging at least part of the UCC filing to the company. Considering that we will be charging a low fee that seems fair.

Risk management is the biggest thing that can get out of control with a company like this. We would have credit limits on specific companies per carrier and as a whole for our company. We have spent some time talking to someone that has been doing this in and out of trucking for years. There is a lot that goes on behind the scenes between factoring companies and the broker/shipper/etc.

I am sure there will be lots of little tweaks before we launch this.

I will say this about factoring companies that irks me. They are not just marking up fees, some of the fees are over 1000% markup and some have no external expense at all. Someone factoring $4-5k per week could see an additional 1-2% in expenses.

 

This is how factoring companies are doing it now. You are reading managing risk as more turndowns. This is how they stay in business. How it is done is complicated and accounts for everything.

 

Again, you are in some way reading how we would be managing risk that we are being more restrictive than other factoring companies. And my last response was short as I was responding from my tablet.

A factoring company my approve a broker today, tomorrow they may be recourse and next week not approved. This can be that the carrier is doing a large percentage of loads, that the factor is getting more invoices overall from this broker and/or the broker is paying slow and/or playing games to delay payment.

And I agree, that if our credit standards are so tight that it is hard to get a broker approved we would lose clients.

But I don’t recall even indicating that our business model was one that would be overly restrictive in our credit standards.

But you can’t have just a set standard and line I in the sand in this business. A carrier that only factors a portion of their invoices is going to be a higher risk than someone that factors everything. Because in general when someone is picking what to factor it is likely they are factoring invoices of brokers that are slow pay or they feel are a risk for some reason.

And this is how this business is conducted. But please don’t believe because I am talking about risk management that I am for some reason talking about being more restrictive.

 

Oh, I agree on that point. I'm talking about taking those out of the mix. I have used a factoring company not because of cash flow issues but to distribute risk and to get the fuel discount. Fuel discount alone paid for almost all of my fees. And was able to get rid of credit service that made up the difference. Also thought it would make collections easier but it made it harder. I sent enought for fuel and would take the ones that seemed riskier to me. I'm not using them anymore because they caused more issues than it was worth.