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

Agreed that Financial Carrier Services out of Ft. Mill, South Carolina, has a bad reputation that they constantly EARN because they will NOT communicate with their clients.

I had a $17k load that FCS would NOT pay for over 5 days, nor communicate with me about whether or not they would factor the load AFTER I had turned in the paperwork for them to factor the load. I had a blood clot and wound up in the hospital and FCS STILL would not factor the load. Five days later, I was paid directly by the broker and informed FCS not to bother factoring the load.

A month later, the FCS took 5% of the $17k ($850) out of another load--this is because you are REQUIRED to factor every load with FCS even if they jack you around like they did me. I talked with ALEX (Vice President) and I still have the saved emails from this worthless HOS concerning this situation and how FCS attempted to shake me down for an additional $7500 buyout fee.

Additionally, months AFTER I signed up with D&S Factors, who does NOT require you to factor every load, another broker sent a check to FCS instead of the new factoring company. FCS illegally cashed this check (because I was no longer under their contract) and STILL has not paid the money back to D&S. Folks at D&S have indicated that this is nothing new and they constantly have to deal with FCS doing the same thing to their clients--it is just Standard Operating Procedure for FCS.

 

I use TBS Factoring Service. They pay quick and only charge 5%. Plus they can run credit scores fast and are set up with GetLoaded. Very friendly people that offer other services as well. You do not have to factor all loads, just the ones you need.

 

5% per month x 12 months is 60% APR. You'd be better off financing it on your credit card.

 

As the owner of a factoring company, I strongly believe that there is no better way to finance strong growth. If you are not growing, there may be less costly ways to survive.

On Friday, we funded a transport company that has been with us for 5 years...they started out at $30K per month and are now heading towards $750K per month. Their largest customer, a large oilfield company, loves doing business with them and has as much work for them as they would like to take on. We're proud to have helped support this growth - you can't do that with a credit card. What a great story!

The advice on this thread is good...do your homework before selecting a factoring company. There are lots of bad ones out there, but also plenty of good ones.

Best of luck!

 

While I agree that 5% is a lot of money to pay a factor, is it a cost of doing business. You can use a recourse factor, but it could cost about as much, depending on how long it takes the factor to collect the money. Most recourse factors base their charges upon how long it takes the broker or shipper to pay. Factors can help by checking and monitoring credit. You don't tie up credit lines by using a factor and don't have to worry about getting paid. If you are getting good rates, you can afford to pay 5% to keep your cash flow moving, at least until you build your cash reserves. If you look at factoring objectively, they do the billing and collecting. You either do that yourself or pay someone to do it for you. There is a cost either way. I am not suggesting that anyone use a factor, but it is an option. I prefer quick pay to factoring, but not all brokers or shippers offer quick pay. It can enable you to do business with a shipper or broker that may have good paying freight, but take 30 days or longer to get paid. Every business must have cash flow. No business can survive without cash flow.

 

I agree with everything there... except 5% for 30 days. If Visa was charging folks that for their plastic... they'd be having a holy whoppin' s... fit! Everyone needs to be aware this is very expensive money. The guys at Factors-R-Us don't want their customers to understand that.

 

IMO if you have to use a factoring company you are already in trouble. The idea would be to use one until you can cash-flow your business and then move away from them ASAP. Problem with this is that once you start using one your cash flow drops and now you are in a viscous circle that never ends.

If you use brokers insist on quick pay. You will find that most brokers are willing to negotiate quick pay rates with you and some, like me, simply build it into the rate. If a broker is not able to do quick pay he/she is already in as much trouble as you are and you shouldn't do business with them in the first place.

Cash flow is a fundamental part of any business and one that you should be able to do yourself. It's easy enough to visit your local bank and establish a line of revolving credit, another tax deduction at the end of the year, and work with your own money from start to finish. Always, 100% of the time and without fail, check the credit worthiness of the customer/broker and don't fall into the "rate was so good I took it" trap. Rates that are too good to be true are few and far between and usually done in desperation.

A trucking company, large or small, operates at about 9%-11% profit. You can't give away half of that and stay in business very long.

 

Agreed. 5% for 30 days is a bit pricy and there are much lower factoring rates out there....even at low monthly volumes, but it's not always only about the rate.

 

I agree that it is expensive. But, so is fuel, equipment and tires. Most people can't afford to fund their receivables for extended periods of time, especially starting out. The smaller carrier is particularly vulnerable. Smaller companies often don't have the financial resources as do the larger carriers. There are options, other than factoring. And, there is also recourse factoring, which can be much less expensive. The main advantage to non recourse factoring is that you can send the invoices to the factor, they send you a check or direct deposit and they do the rest. You don't have to worry about collecting your money. The factor assumes all liability.

A line of credit can be much less expensive if you can qualify. Most lenders require a certain amount of time in business. My bank required a 2 year history to make a line of credit. Moet will not give a line of credit to a start up. If you have a bank or credit union that you have dealt with for a number of years, you may also be able to get a loan by pledging personal assets or take a second mortgage on your home. A home equity loan works similar to a line of credit. The down side to any line of credit is that they must be repaid and terms are dependent on your credit history, experience and assets. A line of credit can be given on a signature, but assets are still usually used to secure the loan. With factoring, you don't need credit since it is not a loan. Receivables that are factored are funded based upon the credit worthiness of the broker or shipper.

I have seen non recourse factoring for as low as 1/4%. Rates will escalate the longer it takes for the factor to collect. Some banks also factor receivables, but most require a significant level of receivables. A few years ago I checked with some who do factoring and they were only interested in a minimum of about $250,000.

Using quick pay at 1-2% is probably your best bet starting out. It is less expensive than most factoring fees and you can receive your money within 48 hours with most who do quick pay. It is always a good idea to ask about payment before taking a load. Like every other expense, all fees are deductible, but you still need to make a profit. Just because an expense can be deductible, doesn't necessarily mean that you should do it. Anyone who is thinking about ways in which to finance their business should consider all options and select the one that is best for them.

 

Just because a company factors doesn't necessarily mean that they are in trouble. Factoring could keep them out of trouble. Some of the largest companies in the world factor their receivables to preserve cash flow and free their lines of credit. You just include the cost of factoring in your rate. Like all costs, you can deduct them. Just include the extra cost in your rate. I agree that quick pay is better, but if you can't afford the cost to factor, you are probably hauling for too low of a rate. There are some smaller brokers who may have good paying loads, but don't offer quick pay. Quick pay is becoming more prevalent, but not all brokers offer the faster pay. That may not be an indication that the broker is in trouble. But, you don't want to miss a good paying load because you either can't afford to hold the receivables or don't want to factor.