Getting started as OO, should I factor?

So by using a factoring company, it true you would receive fuel discounts and they save the O/O some administrative time and effort? Is it safe to say they save you time allowing you to do other things? Maybe in some cases it is well worth it.

 

Not all factors offer a fuel card and discounts. Factoring can help you grow the business without capital debt. You may give up a few percentage points for turning your money faster, but there are some other benefits. When you factor, you send them your paperwork and they do all the billing and collecting of the money from the broker or shipper. They also check credit for you prior to accepting the invoice from a new company. Either you will need to subscribe to a credit monitoring service or check credit yourself or you will need to pay someone else to do the paperwork for you. If you can afford to wait on invoices to be paid, you can expect to wait about 40-60 days from the time you deliver the load until the customer receives and pays the invoice and the mail gets the check back to you. There are some brokers and shipper who will pay faster, but that would be a good average time to allow for a turnaround on invoices without factoring or using quick pay.

You can get your own fuel card. You may or may not get a good discount. Comdata has a program for independents and small fleets. I think they offer a $0.10/gallon discount. There are other cards available. You could also open up a business account with TAB Bank and receive a rebate of 1.75% off your fuel. It is like a Mastercard so you can use it for other purchases for your business.

 

If you run 100k miles at $2.00 a mile this year and it costs you 10k to factor... You are not paying 60%. The factoring company still had 190k at risk through the year ... They don't make 60%.

 

5% per month has always and will always be 60% per year. The factoring company never had $190k at risk you only borrowed it in $1000 increments or what ever and the term is 30 days. They loan the $1000 over and over.

$1000 x 5% is $50
$50 x 12 months = $600
600/1000 is exactly 60% and always will be.

 

Yep ... And 60% of 200 k is what ?

 

Think about it in the reverse .. If you loaned someone $100 for 5% and the payout terms are 30 days you'd have $105 after only 30 days. Now extrapolate that out to 12 months. 60% interest (yearly)

 

Why do you concentrate just on interest rate? You paying these people for work they do for you, plus you use their fuel discount.

 

It is better to pay a few percentage points to a factor and have the cash flow than be forced to sit and wait for your money. You can't expect them to work for free. If you go with a recourse factor, you could get a rate in the 2-3%. There are also other means to finance your growth, such as a line of credit. A commercial line of credit would be less costly than factoring, but you will still need to do the billing, collecting and waiting for your money. With the line of credit, you are responsible for repaying the loan, whether you are paid or not. With non recourse factoring, you don't have to worry about repaying the factor if they don't receive payment. For anyone thinking of factoring, you should check around with different companies. There can be hidden fees with some of them. Read any contract over very carefully. Make sure you fully understand the terms and fees involved.

 

If you are a broker and a new carrier is calling you to work with you, what goes through your mind when the carrier says they factor the bills? To me I'd be wondering if this guy will make it if he blows a tire on the way. It screams that the carrier does not have enough money to survive a mere 30-45 days while waiting to be paid.

The fuel discount part is easy. Either get a card that is accepted everywhere and seek out the places where the prices are always lower than the chains, or get hooked up to the nastc program and fuel exclusively at ta and petro.

 

It is all about the interest rate! If you need say 20,000 for operating expense go to a bank and say you'll pay them 10%, it will cost you 2,000 over 365 days rather than if you factor say 200,000 at 5% that's 10,000 for the same 365 days. With a 20,000 loan even at 10% you'd be far ahead and have operating money. Accomplishes the same thing as factoring at a much lower cost. Can you see why a line of credit is a better way to go now?