Getting started as OO, should I factor?

I have never had a broker or shipper ask whether I factor or not. Some of the biggest corporations in the world use factors to finance their receivables. Remember, most fuel cards have a fee attached every time you use it so make sure the fuel discount will offset any of those fees or charges.

 

Gman, do you have any examples of these large corporations who are factoring their receivables? Why have these corporations not been successful enough to convince a large lender to offer them a big enough line of credit to keep them going at a much lower rate than factoring would cost? Perhaps the bank with the line of credit does not see them surviving much longer?

Factoring is predatory lending, plain and simple. Use it at your own risk.

 

lol... Thanks for the response, but I'm not mathematically challenged. My point is you don't pay 60% of 200k. I don't care if they loaned you the same money 12 times... It's still 5% of the money loaned in a year. When I look at new trucks I don't know or care what the manufacturers profit is, I also don't know or care what the dealers profit is, I care what my profit will be. Peterbilt is not pissed off if I make 100% net profit off the life cycle of said truck.

 

I didn't say you pay 60% of your gross revenue .. I said you are paying 60% when you decide to factor for 5% ...

Maybe some people get uncomfortable immediately after a load is delivered and hits the accounts receivable page ...

 

For the op:

Many brokers offer "quick pay" - sort of their own in house factoring you could call it. You can use it once in a while, all the time when you are getting started, you can go on and off at any time. Factoring with an outside company really shouldn't ever be necessary anymore.

 

I will try one last time, and we can agree to disagree afterwards. If I get uncomfortable with a load for $3000 and decide to use factoring services, it will not cost me 60% of $3000. If I decide to to do it 12 times in a year, I would have borrowed $3000 12 different times, and it still won't cost me 60% of of the money borrowed.

 

Not sure where you are getting the idea where anyone said you'd be giving up 60% of your revenue ...

The only point I was trying to make was how much more it actually costs to factor rather than other ways of having enough operating cash in the bank ...

I don't know how else to explain it. If you are content giving up 5% monthly more power to you ...

 

For the record, I don't use factoring services, but if I choose to use them I don't feel like it's a ripoff. Using the $3000 a month example people like to look at it as it's the same $3000 every month. To the factoring service it probably is, however to my bank account it was $36000 if I did it all year. I paid 5% or $1800 for the service.

 

The best way to re-state that made sense to me is: Figure out what 5% of revenue (or whatever the cost is) as a percent of your profit number. Everyone seems to stop at $50 on $1000. That is cost as a percentage of revenue.

Say you have a fat 30% profit on that run, after expenses and paying yourself first. What's $50 out of $300? 17%. Of course that number is inversely proportional to your profit. Unfortunately, most new carriers have a higher cost basis, due to inexperience and unproven equipment that will need some potentially expensive, unscheduled repairs.

That does not include fees for everything. Or if you're using the factoring company's crappy fuel card with a token discount, that itself is probably offset with a swipe fee.

You can play games with APR to make it look as bad as you want. At the end of the day, what matters is how much of your profits does that cost consume, and are you getting that much value out of the transaction.

I'm not Danny, but here's what I've seen. About a half dozen brokers I've done loads for in four years, coming up on 1,000 loads delivered, have gone bankrupt. Only one of those was a close call. That one went out of business about two months after I collected on the last load. That said, I did not accept any further offers (and there were a few), due to a difficult collection experience. They weren't extraordinarily late payers. More a case of fast payment terms that were never as fast as promised, and required a lot of followup calls. So even the close call going bankrupt wasn't exactly a surprise and easily avoided.

That said, here's some food for thought. A bankruptcy is rare, but claims are gonna happen. That's more likely going to jam things up, and a no recourse deal won't help you. In all this time, I am now actually within a week of taking my first collection to a bond and/or small claims court. I am approaching 60 days on an invoice with a four star mega broker that has decided not to negotiate a BS claim ($265 in advance lumper fees) nor pay their outstanding invoice ($2,365). This is a company with the best credit rating and reported $786,000,000 revenue in 2013. Jamming me up over $265, because they can.

There's two important points in that example.

#1 is that even if you have done the best due diligence, even have a positive history with a customer for 50 earlier loads, there is no guarantee that will always be the case.

#2 this is a direct invoice. But what if it was factored? I stopped factoring invoices almost a year ago. Under that agreement, I would have been advanced $2,128.50 the day after delivery with $236.50 kept in a reserve account. Under ordinary circumstances, when the invoice was paid in full promptly, $93.42 (3.95%) would have been taken from reserve and the balance ($143.08 plus all the others paid that month) paid out at the end of the calendar month.

So what about this one? Under the agreement, the factoring company could do a couple things. Most common is that they would claim the full invoice advance of $2,128.50 back against my reserve balance and assign the invoice back to me. Due to having my account in good standing, they would probably let that ride for 90 days before taking action.

That's not so bad. But what if I wasn't in such good standing? Alternatively, they could just hold some other loads, probably with other customers, that I've turned in for funding but not yet been advanced on, as a claim on that $2,128.50. Or just not release my reserve balance until the claim settles, accomplishing the same thing, provided my reserve account has enough money on it to do that. Ouch. But look at the bright side. It isn't a cargo claim or something that could exceed my entire credit line with the factor. Which could end up making me work for free or just shut down until that claim was settled.

So let's go back to before all that ugliness. Say I decide to dig my heels in over that stupid $265 claim. I have two choices. Either let the factoring company collect on my behalf, or buy the invoice back and go get some bond/sue happiness myself. After all, the collection responsibility goes with the assignment done when the invoice was funded. If I let the factor handle it, they'll likely just deny the $265 to get paid faster, then take that from reserve plus their 3.95%. They own the invoice, after all. Or, buy it back for $2,128.50 plus the 3.95% fee, and collect however I choose to and get the factoring company out of the middle.