Factoring companies: which are good? What to look out for?

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Fast shadow, I'm having a little trouble following you. Are you saying factoring is a positive thing or negative? It seemed like at first you were against it, then vouching for it?

 

There seems to be a little confusion about factoring. When you factor you are not borrowing money. You are selling your receivables. You are not obligated to repay the factor. The exception is with recourse factoring. When you use recourse factors, you will not get 100% of the money until the customer pays the factor. They may advance 80% and pay the balance, less their fee, once the invoice has been paid. If the customer fails to pay within the terms of the agreement, then any advance can be charged back to the carrier. I have a friend that this happened to a number of years ago. The factor deducted the money from his checking account without telling him and it really put him in a bind. I think that there were a couple of rather large accounts involved. If every account you send a factor pays in the agreed time, then there is not a problem and fees are less than non recourse factoring. With non recourse, you sell the receivables to the factor and then forget about it. The factor accepts the risk and can't charge back to you if he isn't paid. You pay a premium for the non recourse, but don't have to worry about not being paid or having an invoice being charged back. You can factor regardless of your personal credit or time in business since the factor looks at your customer, not you or your credit. Since factoring doesn't involve borrowing, you are not using up your lines of credit and you don't have to worry about repaying a loan. The factor checks credit and then determines whether they will accept the receivable or not.

If you have a line of credit or have the resources to finance your own receivables, then you assume all the risk of checking credit, invoicing and collections. It is much less expensive to use your own money, as long as your customers pay as agreed. Using a line of credit requires that you repay the loan, whether you are paid or not. You will usually need good credit and an established business to qualify for most lines of credit.

With quick pay, the broker usually pays within 24-48 hours from receipt of your paperwork. Your personal or business credit is not important, since this is not a loan. Some brokers will pay within that time frame without a discount, others can charge from 1 1/2-2% or more. It has the advantage of not using up your lines of credit and you don't have to worry about collecting your money. Using quick pay or factoring provides the means of providing cash flow that keeps your business running without accumulating any debt or risk for collections.

 

Thanks for clearing that up G/MAN, i was wondering why everyone was talking about factoring like it was a loan. I totally disagree with recourse factoring, its not right, and many factors take advantage of this. Claiming paperwork is not received correctly, or payment is not received from brokers in a timely manner therefore charging the carrier back. This is not right, carriers are paying for a service and they should get what they pay for, not get scammed or ripped off. These are the companies giving factoring a bad name, its not a loan, or expensive money necessarily, its a service, to help keep carriers moving and not chasing down money. As I've said more time is spent doing their jobs (driving and finding loads) than worrying about slow paying brokers, or chasing down money/deductions. Just as many carriers pay dispatchers for booking loads, factors are in place to help with the receivables side.

 

It's an evil you have to deal with. Does anyone like high fuel prices? No. Does anyone like high intrest rates on their truck load? No. It's part of doing business, so you try and minmize the cost by getting the best terms possible. To think 5% a month is not a big deal is not understanding basic math.


Fast shadow, I'm having a little trouble following you. Are you saying factoring is a positive thing or negative? It seemed like at first you were against it, then vouching for it?[/QUOTE]

 

I can see your point..I guess i just look at it differently..If someone does, lets say 10,000 a month and factors it all at 5%, you'd be spending about $500.00 for that $10,000.00. Lets say that by not factoring you run into a slow paying broker, or a broker going out of business, and you are left without one load paying that month. Id say in most cases the $500.00 makes up for that and a $500.00 load is a small load in most cases. But thats me, to each their own I understand your point though.

 

Trucknut87, I offer both recourse and non-recourse factoring and don't see why you think recourse is a bad product. Like anything else, it's the right product for some people, but not all. Non-recourse is what you get when you marry a recourse facility with credit insurance, which protects the factor and invoice seller against bankruptcy or undisputed non-payment of a shipper/broker. The complaints you cite regarding paperwork can be true of recourse or non-recourse programs because the required paperwork is identical and should be in order and verified BEFORE funding the client - otherwise, you could wind up with a dispute on your hands and nobody wants that.

I do not believe in the following argument, but one could say that non-recourse is bad because it makes companies pay an additional insurance premium on ALL invoices - even those that will never go bankrupt. I don't try to say one is better than the other because there is no single perfect solution for everyone. Some people prefer to take more insurance than others and are willing to pay for it - who am I to argue with them?

 

You make a great point keyfactor! I'm not necessarily saying recourse factoring is all bad. But it definitely opens up the window for greed. Especially on ones with sliding scale rates etc. where percentages double at 45 days etc. whose to say the paperwork actually didn't "get lost in the mail" or we are having trouble collecting payment for your load. I don't feel it's all bad, but not something I'd get myself involved in.

I've also never dealt with "insurance premiums" for non recourse either. But that's me and I don't know everyone's policies. I totally agree with you that there's a service that fits everyone's needs individually. But for me, anything outside of flat rates, non-recourse, non-reserve/holdback etc. would be all I'd get involved with.

 

The original post really got some mileage on this one, lol. Now that we agree that factoring and quick pay can be valuable tools for small businesses, exactly who are the factor companies that you guys recommend?

 

Well as you know there is no advertising...but PM me and I'll get you some info on a Great one!

 

What do you mean by paying for an additional insurance premium? Do factoring companies actually buy an additional insurance premium for nonrecourse invoices?