help with choosing factoring company

This is the sort of response that tells me you're headed for trouble. You don't understand how this works, and non-recourse doesn't mean what you think it does.

Don't take this the wrong way. I like your posts and you contribute some good stuff. If it weren't for that, I'd probably have just remained silent and let this shipwreck go on and happen.

You know what the dozen or so bad factoring stories I've heard all have in common? The client didn't understand what they were getting into, nor what their obligation included. That led to a relatively innocent mistake that put them into default, then the once friendly factoring company suddenly went full nuke on them. They never saw it coming, because they didn't know better. Either they never read the agreement, or if they did, did not fully understand it. Then they come back here posting as the victim, and trash the factoring company for reacting to something they themself did.

Not saying this scenario is guaranteed with you personally. However, I been doing this some years successfully, with two different factoring companies. I know what I'm talking about. In fact, I quit referring people to the outfits I use for the above reason. Two for two of the referrals I made early with the first factoring company failed in under a month. I swear I felt both men were on top of their game and low risk referrals, until it blew up exactly as I described. After that, I refuse to be connected in any way to someone else's ignorance-fueled failure.

Sorry if this comes off as harsh, and I don't post this just to pick on you for the sake of it. I like to see people succeed, and consequently I tell people what they don't want to hear at times.

 

What happened? I only got with Truckstop so I could run the loads I was too paranoid to take. Without them, I've got a list of around 40 brokers I work with, so it's not so much that I need them, as I want them. What are the pitfalls I need to be worried about?

 

One case involved a broker payment being sent mistakenly to the business. Long story short, the check got deposited before he knew it. He did the right thing and reported it to the factoring company and offered to immediately make payment. They weren't happy, but worked with him. Then if I'm remembering right, it happened again a few days later. The second time they didn't take it so well. Without notice, they stopped advancing him money on new invoices. They accepted them, but no funding. Also abruptly became less available by phone and email. They were done screwing with him and were running their "account in default" playbook. I think he had half a dozen loads jammed up awaiting payment, and could not run new loads with assigned customers, until it was settled a couple months later. Really put a hitch in his business. Dude even quit talking to me because I didn't agree he was the victim in all this.

The other guy had a cargo claim involved. Might have been two, I don't remember. The broker involved held up several of his invoices. He compounded the problem by handling that badly, so the factoring company got involved and held several with other customers. In both cases, that's called an "offset." It's where they withhold all payments in anticipation of a loss on one invoice. It was like dominos. One problem, poorly dealt with, begat 10 more. In this case, it expanded from a stack of invoices to one customer, to all assigned accounts, once the factoring company got involved.

Factoring is a line of credit, secured by your accounts receivable. No matter what you think is happening, that is what it is. The rest of your business is at stake in the relationship. You remain responsible for seeing to it your factored invoices get paid. You remain responsible to work through any claims, whether that be missing pages from the bills all the way up to a total loss on a cargo claim. And let's be real, the people at the factoring company are clerks that don't really know squat about the service being provided. They just know the amount due and attempt to collect it on your behalf. It's up to you to mind your aging reports and get hands on the moment something isn't going completely right.

"Non-recourse" ONLY becomes a thing in the event a broker becomes financially insolvent. Any and all other claims are 100% on you to resolve. If the receivable goes longer than 30 days, the factoring company may charge you interest. If it goes longer than 60 days, they may charge it back to you. Non-recourse is a sales gimmick that doesn't do anything for you other than cost you a little more on your fees to get it. By the time any broker gets risky, most factoring companies are already refusing advances on their invoices. If the broker seems too risky to you right now, you can usually bet the factoring company won't take them on either. And if I'm being honest, you're actually taking on substantially more risk by factoring a sketchy broker, than just risking your own money with a direct bill. If you're worried about taking them on, you definitely do not want to send those invoices to your factoring company even if they are willing to accept them.

The thing is, factoring works great until it doesn't. It isn't rocket surgery, but if you miss a step they have you firmly by the nuts and there isn't a lot you can do about it. I'm going to guess your "contract" is a short form and contains a URL to an online published long version. You need to go get that and read the tiny print. Specifically the definitions for "account in default" and "cancellation/notices." The former spells out what actions will bring on the hurt, and probably describes what that looks like. The latter is important to know when at some point in the future you want to unwind the deal, whether under good terms or bad.

TLDR: Factoring isn't a dumping ground for risky customers. Non-recourse is fluff that costs you something and almost never delivers.

 

@God prefers Diesels, I signed a factoring agreement 2 years ago with Truckstop.com factoring for the same reason - another tool in the box. Back then times were lean and I was close to work with any broker that was approved by them.
I put it on the back burner and never used it.
After 3 months of not using them, they notified me of my account becoming suspended due to no activity. I never requested termination - did not pay the termination fee, nor did I apply for another factoring, and so far I've had no problems from them - badgering me for whatever or reminding me that I am still their client - which technically I still am but never becoming active - they never made money on me.
When they called me to notify me about the suspension, the also said that the reactivation would take one phone call.
What @RedForeman said was exactly why I picked them, not anybody else. Their agreement terms which look similar to the ones someone posted above were simple to understand and not very demanding - no minimums, no escrows, no need to surrender all of your customers, small money transfer fees.
Maybe I'll call them later and ask them to confirm what my status is with them and if I should not request the termination in order not to have that UCC filing ever becoming an issue. Or in case when I ever want to really factor an invoice.

 

@TallJoe you should definitely find out your status with them, and get it in writing. Better yet, dig into your agreement and follow the terms in the termination section to the letter. It should define process and notification periods. Read it carefully, read it two more times, then step through it to the letter. Most likely the first condition will be no outstanding invoices, I'll venture a guess you're already there. Then there will be a notice to terminate, in writing, probably by certified mail to a specific address. That will start a timer, probably 60 days minimum, up to your next anniversary date, that they have to respond and comply. Bear in mind, once you begin this process, they will probably make a last ditch attempt to keep you and drag things out a bit. Once they figure out you're done, they will become a lot less helpful and responsive. Which is why it's very important to follow the steps defined in the contract, to the letter, and document every contact, and never assume they've done what they're supposed to. Verify each step and check it off as you go.

Because they'll tell you whatever it takes to get you off their phone. Things get a bit more real when you demand it in writing. You'll probably find them to be less helpful when it gets to that. I'll bet $1 there's still a UCC filing in place and your account with them, although inactive, is also fully in force. The fact that you've done nothing to terminate the agreement and part ways per the terms of your contract, I'd say my bet is a safe one. These things don't end until you go through the flaming hoops to get it done. As long as you don't, they keep that hook set on the rare chance you decide to return and become the customer they wished you were the first time. Or at least position themselves as the "easier option" should you decide on some future date to urgently secure financing elsewhere.

It's not over until you have a blanket release in hand, as well as verifiable proof that any liens/UCC filings have been rescinded.

Fun fact. When I decided to return to factoring, I considered Truckstop, among others. Nothing about them stood out favorably and their rates/fees were higher than I knew I could get. If anything, the material they provided was too ambiguous for my taste and OMG are they spammers. I passed.

That said, I wouldn't classify them as the worst of the lot. They do have name recognition and reputation to uphold with their many other services offered. I have to imagine that makes them less likely to pull a deliberate scam or be nasty to you without cause.

 

When I signed that agreement, I was also suprised by its shortness but don't exactly recall any URL references on the very document I did sign.
I remember a number of phone conversations and email correspondence with them about the terms where I specifically asked about potential pitfalls or termination procedures and what seemed appealing about that particular factoring was that there were not any.
I'll have to check on that later...

 

They don't make it easy to find, especially for a prospective customer. I dug back in and am reminded why I shied away from them.

I found the "agreement" with the site map. It's buried. Terms and Conditions

This document does explain the terminology and how it works at a high level. It does not define default or termination. However, there are three references to a separate "Terms of Use" document, where I am sure that is defined, with no link to view it. I suppose you don't get to see that, unless you're an active customer and have a link on your personalized portal, maybe in a "my documents" folder or the like, or just demand it and they send you a link to see it. If you can still log in to it, see if you can find a link to Terms of Use and that ought to spell out the termination process and any notification requirements and time periods.

Don't keep putting it off. It's probably not hurting anything today. But if for some reason you decide to do something and this becomes a barrier, it's not something you can fix with a quick phone call or email. It's a deliberately long and drawn out process in most cases.

 

Just use quick pay on some of the loads you take and you will be fine. Most all brokers offer this.

 

What factoring company do you use?