Getting started as OO, should I factor?

Usually any problems involve claims, or disputed accessorial charges (lumpers, detention, layovers, pallets, etc). The best offense is a good defense. Read the rate confirmation carefully, and get answers in writing before you accept the load.

Same with claims. We haul reefers. Produce comes with it's own set of risks. As it is, we don't haul much. Not because we avoid it. It's just not in our usual lanes. Product claims for us are usually related to product count and packaging damage. Most often caused by the dock hands. Pictures and a report takes care of 99% of claims and we get paid. Occasionally we've paid for some missing cases, usually less than $100. We don't baby sit and count every load, so even that small amount could be avoided.

Easiest thing to remember is you are in charge of what goes on your truck, or doesn't. Don't be shy about getting out of your comfy bed to watch the load, especially when loading someplace new. I've found that just being on the dock is enough for the hands to be more careful when loading. If you see something you don't like, don't be afraid to stop them and question it. Or, noting anything out of the ordinary on the BOL before accepting it.

 

At one time GM factored receivables. I believe GE also factored at one time. Many trucking companies factor receivables. The large companies, such as GM can use factors for a very small percentage rate compared to a single truck operation. The advantage a major corporation has in factoring is that they have access to the funds without it appearing on their balance sheet. If they use a line of credit or borrow money, then it will need to show as debt on the balance sheet. When investors look at debt to ratio's, it would look much better to factor than to borrow. With factoring, there is NO debt.

 

GM isn't what i would call a good example off how to do bussiness.

 

You can try to explain this until hell freezes over and some people will never understand it. I agree with you 100%.

 

Yes I also agree. It is 5% period. I see it as a value added service as well. They generate invoices, send, and follow up. It's like having an accounts receivable department for your business. If your time is worth money, the service pays for itself. Use your extra time to generate more revenue. Should be more money than the cost of factoring. I would just shop for the best fit for your business.

 

There are many large companies that factor notes. You would be surprised at some of the big blue chip companies that factor. I factored when I was a builder, I did not want to wait around for 90 days waiting on my money from the last draw. I had other projects that money needed to go into. Just because I factor various notes does not mean that I am not financially solvent. I ask for a higher rate for those customers that take longer then 15 days to pay. I encourage my customers to pay faster with a discount program, but still use non-recourse factoring as a backup. I would rather give up 5% on a $3 per mile, than 1.5% on a $2 per mile load. In business Cash is King. Factoring used properly is just another business tool, as are fuel cards, credit lines, etc. Here is what screams out to me when the customer asks for 45 - 90 days to pay me? Would my electric company let me keep the lights on if I took 90 days to pay the bill? Would my water company keep the water on if I took 90 days to pay them? The bank will be entering into foreclosure on my home if I have not paid the payment within the 90 days. I have only had a few customers balk at me factoring them, and I told them the options were pay in advance, or COD. My advice to any in business, is to research when looking for a factor, decide as to which is best for you, recourse or non-recourse. I personally go with non-recourse even though it cost a couple of points more, because once I sell the paper I don't want to mess with it again.

By the way the interest rate is far above 60%, the factor will make over 1000% per $1000.00 they are investing most often. The reason for this is that the shipper/broker will often times pay the factor faster than they will pay you. You don't report to the credit agencies, they do. They are also hoping that you get to hurting for money and will come back for more of the drug and they will offer you an advance with a fee for such advance.

Factoring will give you the power to make the decisions for the best loads from numerous resources, you will not just be bound to the limited amount of customers (brokers) that offer quick pay programs.

 

I've been doing this for over 13 years. In that time there have been 2 invoices that have not been paid. The total of both is about $2000.
Also these were both shippers not brokers. One was just a dishonest liar. The other company is bankrupt and currently in court. I might get some of that but not likely.

I have my own authority. I do all the paper work myself, finding loads, driving, sending off the invoices and everything else.
The invoicing is easy. Takes maybe 15 minutes or less. About the same or less time as sending it to a factoring company. Your only looking at filling out the invoice, one sheet of paper with the load number, shipper and receiver, dollar amount and who the invoice is to with the address and date. Then making copies of it and the BOL. Put one set in an envelope to mail and keeping one set for your records. Some of the shippers will take faxes without sending in the originals.

I had a printing company make me some 2 piece carbonless invoices with my letterhead on them. Get like 1000 at a time. Doesn't cost much per set and makes it quick and easy.

The ONLY advantage of factoring is if you don't have enough money to operate on.
If I had factored my loads over that time my cost would have been over $60,000. I've lost $2000. Duhhh.

 

Factoring is accounts receivable financing. The difference as you get larger is that you are able to negotiate better terms and services. We stayed with a "factoring" relationship rather than a bank line of credit because the company we are with will lease us trailers, do collections, provide a line of credit, fuel discount (we now have a better program) and provide some consulting services.

We would have saved $50k a year with the bank at $1 million a month but we would have to had hired a Controller to meet the financial reporting criteria PLUS have fully audited financials (only advantage is to the bank, no advantage to me).

Not taking any of the additional benefits, the "cheaper" money at the bank would have cost me well over $100k a year.

Don't look at the rate alone, put a price on all the services and compare the true cost.

Why it has gotten such a bad name is that most of the drivers that bought a job don't do the math or understand the contract and are getting taken. Non-recourse typically costs an additional 2%. But the company will severely restrict who you can run with not just because of their credit but because of the risk level of the factoring company (they have a bunch of other clients with them). Very few people can tell you they got paid when a company didn't pay. Many can tell you how they got charged back for one reason or another.

 

$1800/$3000 = 0.60

APR is not gross percentage. But it is an effective measure of how much one values time in relation to money.

It cost you $1800 to borrow $3,000 for a year. You could have put $3,000 on a high-interest credit card and it would have only cost $500.


Now if you were paying $500 for the privilege of having your money now and $1300 for the collection service -- that's one thing. But when viewed solely as a means to obtain money now unstead of later, factoring is extremely high cost lending.

 

Need a new bank. Decent financials will get a 4.5% LOC. 1 mil/month = 3750.00 vs 1 mil a month at even 1%(which I doubt,maybe 2%) = 10,000.00. 75,000.00(more likely 150,000.00) year will more than pay a CPA to do monthly statements and outright purchase a few trailers.