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

Well people use different services for different reason.

And to help you out most of the shady factoring companies also add additional fees on top of the main fee. $5 per invoice, want that money overnight? that will be another $15. Sure we will take scanned copies. That will be $1.50 per scan.

So your comparison to interest rates gets higher.

 

My experience with factoring was that I spent much more time dealing with the factoring company than I would have collecting from customers. I have their hold music memorized and believe I have been transferred to nearly everyone working in the company, I have had to sign and fax documents over and over again. Originally, that's what lured me in, that it was a SERVICE. instead of figuring out if this customer wanted originals mailed or that customer wanted email documents, or this place wanted scans. I would just send all the same way and money would show up in bank account. If you think that is what factoring is, it's not. Each invoice is a loan application, and when they are denied you will just get paid a couple weeks later than usual. The factoring company is not johnny-on-the-spot to bill your customers either. Yet, when they are 30 or 45 days it is still your problem to deal with.

You know another point, not aimed at anyone in particular, but all this % of gross is a big scam in this business. Not just factoring companies, people looking to lease trucks, brokers, everyone wants to offer the O/O something for a % of gross. If there is one thing I preach to fellow O/O's it is that gross is meaningless. you want to gross a lot of money, I will lease you on right now and you can gross $350,000/yr, but you won't make much money. 5% sounds little, but alot of O/O's are running at 20% or less profit margins. 5% is 25% of your NET !

Even if your margins are 50% NET or better. A person grossing $5,000/wk with two trucks will be spending $500 or more per week to factor ! $26k/yr ! I don't care who you are or how rich you are $500/wk is way too much to throw away. Especially to a factoring company that rejects an invoice when you need that money the most, puts you on hold, does not address emails, holds invoices without telling you if they intend to bill them, factor them, or throw them in the trash. I mean, as stated before, it's insane. It's the epidemy of NON-SERVICE, and = NONSENSE.

 

Maybe you just signed up with a company that had bad service. If you read this forum, there are many satisfied users and many recommended factoring companies....can't paint them all with the same brush.

 

I hope you are right Key Factor. For the amount you pay a factoring company should be able to provide some SERVICE to you. However, I think anyone considering factoring should know that they really have no motive too. You are giving them so much power over your business they can easily make demands on you and even make it harder and take longer to get paid. Anti-factoring.

The phrase "people get lazy in a rigged game" comes to mind.

 

Just like there are "shady" brokers, there are "shady" factoring companies. Got to pull up your BS shield and filter out those you shouldn't be doing business with.

 

You're leaving out some details. Nonetheless, I agree with most of what you've posted. Just not following the same logic.

Coincidentally my business has reached a level of maturity that I was already exploring options. My current factoring has simply become less of a fit for my business in the past few months. Your experience has given me another nudge to get it done.

Key Factor isn't the only factoring person reading this forum. I've even stuck my neck out a little and suggested to my account manager how disappointed I, a client in good standing doing substantial business who happens to be a big reason dannythetrucker came to you, am to see how your case is dragging out. Just short of spelling it out, as-in: is this what I should be looking forward to at some point when you decide you don't like me any more? It doesn't look like anyone has detected that clue. I tried, and that hasn't been the only time. I have been making business decisions for over 20 yrs in three different industries. There comes a point where bad business poisons the good stuff you have going on and you have to wrap it up and cut ties. Apparently they haven't figured that out yet. I really do regret referring you and having a hand in what you're dealing with the past several months.

You're absolutely right that factoring puts that part (assigned accounts) of your business at substantial risk. Of course they don't go into details about the bad news when they're doing the sales pitch. I'd insist anyone considering factoring do at least this one thing. Really take the time to go through it, sound out the big words or hire someone to read it if you have to. My contract is a one page master agreement (the sales pitch) that links to an 8 page detailed terms & conditions. Look through the T&C and find the "Default" section. There's two parts. 1. What constitutes a default. and 2. What happens when a default occurs.

That section on my contract is a half page in 8-point type. The "what is a default" section pretty much states anything happening that does follow the very specific "obligation" section, which is another nearly three pages of 8-point type, constitutes default. Read that carefully and know that any slight mishap or misunderstanding has the potential to turn a great business tool into something that could bankrupt you under the right circumstance.

The "what happens with default" section for the most part says you're suddenly on the hook for outstanding invoices due immediately, describes the additional fees that result, and essentially relieves the factoring company from any and all obligations they have to you. Short version is: you're screwed. I'd venture that 90% of clients that end up in default are already dangling on a thin line and this is the end of their business.

In general (not directed at anyone) I like to think I've made it this far due to being a complete ahole about having everything correctly right and on time, both sending and receiving, since day one. I have micromanaged my factoring relationship more than anything else I've done in my entire professional life. That first month I burned up the phones about everything. I did that because I understood and expected what I mention earlier in this post. It's a one sided deal where you, the client have a big part of or entire business at risk, and the factoring company very little since you're just one of many clients.

Factoring is a narrow fit and there's many flavors of the same service. Anyone doing it just for fast cash or fuel money to take the next load, needs to understand that if your cash flow problem is because of bad business decisions (a whole nuther topic), factoring is more likely to accelerate your path to the truck auction as save you from it.

 

This is a slight hijack but relevant enough. Also not directed at anyone, I think this industry has an absurdly high number of predatory service providers that are ready to "serve" an endless supply of naïve new business men and women. Even when I first looked into starting my business and was doing the research. It immediately struck me that there had to be at least 50 or more businesses dedicated to serving the transport industry for every one that actually operated a truck. That's not an accident.

Anyone new to this, use your head and pay attention. Danny mentions the "% of gross" pitch. My favorite is the "investment" pitch. Buy our product or service for $X and you'll save $X times 3 in the first year. Or month. Or whatever. I tell every one of those. "Since your product is such a money maker, why don't you just send it to me free of charge, and I'll forward your payment the moment that fast payback occurs." No takers so far. Danny mentions the slim profit margins. Know that profit number you're working with and don't spend more than that. Ever. Don't buy into anything that isn't proven to add directly to profit. You'll see that quickly that becomes a very short list.

The other side of my rant are the desperate and wishful thinkers that seem to be attracted to trucking like flies to a dumpster. They are going to make something work because they're blessed. Or because they are convinced everyone else is wrong about it. Or because it just has to work, being their "last chance" and all. Or, my favorite, they're convinced that somehow a path of bizarre circumstances, mostly preceded by a life of bad decisions and self-imposed drama, will suddenly turn around because they are "qualified" (CDL and clean piss test) to hold a steering wheel and wait for the stacks of money to start coming in.

You see it coming. It's a post about something there's a hundred threads about already. Usually the phrase "please don't post anything negative here" or the like, somewhere in the OP. Stop it already. Don't do this until you are prepared to lose every penny you put in plus a bunch more, and embrace the bad news. It's good for you.

I mention this because it's usually the members of this group of desperate people or wishful thinkers that are the reason for the first group of predators to exist in the first place.

 

It's far easier to see the effects of those "small %/or fees" when you have drivers on a payroll. You're looking at a true net profit as a percentage of gross vs the O/O that even though they show a "wage" they don't add in all the costs to that wage.

 

for the record, I have no ill will towards RedForeman for recommending the factoring company I had the bad experience with. He gave me a realistic idea of factoring and warned of the amount of control over your funds they have. Much more so than the rosy "welcome to the family" bs I got from the company. Also, I am not trying to gloss over the details. I just don't want to write a book about it. I have finally received the money they have been holding since February owed to me. I am just waiting for the general release to be signed and returned to me. I can only expect based on previous experience that this will tie up two or three days of phoning, promised call backs, the person I want to talk to unavailable, the person offering to "help" me being unable to do so. Perhaps a few additional documents which "must be" signed before this can be finalized.....

All in all, I can only look at it is a valuable business lesson. A very expensive, time consuming, and frustrating, but valuable business lesson.

 

Gotta go through the ruff stuff to enjoy the good times