Factoring math...let's not make it convoluted.

I'm of the opinion that cash flow is king. I can do more with it in my hand then waiting or chasing it down.

I don't factor, my broker pays weekly. But if I ran the spot market I could see me doing it. It's my money and I want it now, so I can make it work for me.

 

Call J.G. Wentworth

 

Maybe it was there, but I didn't see this in the discussion.
A friend has his own numbers, grosses about $250K a year, factors all of it( about $7K worth of fees. His factoring company approves each transaction(load) before he hauls it, or he doesn't haul it. In other words they qualify the broker's credit for him.
If he didn't use a factoring company, and 1 or 2 brokers didn't pay in the course of one year, he could easily lose the equivalent $7K factoring fees.
He views it as cheap accounts receivable insurance.

 

I read a post here a couple years ago from a poster who was proud he had finally weened himself from factoring. He got lambasted for ever having factored in the first place. Completely irrelevant to this post, but it reminded me of it.

Here's the trap I'm in, while trying to get away from factoring myself. I started out underfunded. I ran into circumstances that pushed my timetable forward into my own authority. I intended to have at least a 30 day supply of cash on hand to provide fuel and operating expenses while I waited 30 days for the checks to come in. Didn't happen and the cost of fuel skyrocketed.

The old addage " you gotta spend money to make money" is my basis for factoring. I don't get caught up in the percentages that KR was trying to push. I choose to look at the factoring cost as merely a smaller amount paid to me for the load, ensuring quick payment. It's the "quick payment" discount. I try to only use the factoring sparingly to provide fuel money.

If the fuel cards were paid monthly, same as invoices are paid by brokers and customers, then I wouldn't need to factor at all. Instead, every fuel card I've seen wants weekly payments in full.

And finally, I don't understand why it is so darn hard to get a timely payment from anyone. I understand the theory of using other people's money. I get it. However, in this age of computers and instant online transfers, is it really so hard to just pay someone?

 

What nobody really talks about is that after 60 days of factoring, you should never have to factor again. So, line of credit vs factoring aside... it’s obvious that if you continue to factor its much more costly then just not at all with no need for a LOC.

 

With regard to timely payments, Uber, Convoy, JBhunt pay within a few days free of charge, provided you are using their app for trucking and load progress updates.
I can wait 30 days, I am not hard pressed for quick cash as much as anxiety of taking a load from a less known brokerage for a higher rate. That's where I find or will find factoring helpful. That of course is vey dependent on the contract terms, in particular the ability to selectively decide which brokerages you want to factor. I would never sign up for a factoring that requires me to submit all of the invoices from all customers, imposes some monthly minimum revenue or maintain an escrow account.

 

If we wanted to be absolutely interests free, we'd have to start by buying equipment for cash and then have nice cash reserve for ongoing expenses.
I'd figure $100 000 and up to start with used equipment and then not have to factor.
Imagine how long it would take for a company driver to put aside $100 Grand to buy his first used truck and trailer.
So it does not matter where you waste money on interests paid to banks. It could be when selling invoices or paying off the equipment loan. The effect is the same. To me interests paid on a loan and money forfeited to factoring are essentially money wasted the same way.
So why getting hung up on factoring alone so much and not paying attention to the costs of equipment financing, which BTW depreciates in value faster than the loan is being paid off?

 

If you take the money you wasted on factoring and put on the loan you essentially make double [100%]

If factoring works for you[anybody] then fine but make your decision on all the facts.

 

Same problem I had in 05. I was stubborn and refused to factor. Then I had a major accident in 08, which disrupted my revenue. You can guess the rest. I also learned back then, during the Banking Crisis, that most publicly held companies borrow payroll on a weekly basis. Something to think about.