Quick Pay vs. Factoring

Unless you need the cash flow you are better off holding the paper yourself. I no longer use a factor, but did for a number of years. Before taking a load I would check the broker's or shipper's credit before committing on the load. Once I delivered the load, I would then send them the bills and paperwork via their Trippak and later Transflow. They deducted their 5% fee and direct deposited the balance into my bank account. This was for non recourse. Recourse factors charge a lower rate and usually depends on how long it takes them to collect the money.

I prefer brokers who offer quick pay due to the lower rate (usually). You also don't have another person with whom to deal. I have a couple of brokers who offer quick pay with NO additional charges or deductions. Another discounts the invoice by 1 1/2% and another discounts 2%. There is another that I sometimes deal with that discounts 4%, but I rarely do business with them due to their high discount rate. If I do, I charge a little extra for the discount.

 

5% flat fee is usually not the cheapest way to go, but many like the simplicity. You could probably save lots of money by going "on the meter" and paying say 2.5% per month because most of your invoices probably get paid in less than 60 days and the savings on those more than offset the few that are paid in more than 60 days. Just saying.

Quick pay versus factoring is a toss-up...more flexible to just Quick-Pay with individual brokers, but that may limit your business. No single answer that makes sense in all situations.

Full disclosure: I own a factoring company.

 

Factoring and quick pay are both not the greatest options in the world. I have a factoring company. Trans am made the mistake of signing their contract. Huge mistake. In the 9 months I have factored with them, I have had numerous problems. One they talk down to us. BIG MISTAKE! 2. I have had to redo their paperwork and correct what they have billed because it was different than what I had billed. They had no experience in factoring grain invoices. When I was hauling gran the customer wanted to pay on the net bushelles and not the gross. We went round and round for a week over that. Sure it was only a few bucks difference but it all adds up at the end of the year. they don't have the carriers best interest in mind just want their 5% or whatever plus the $5 to load my fuel card. My fuel card is constantly loaded late. If my bills are in by noon I'm supposed to be paid by 5PM. never once did that happen.

Quick pay from brokers is not much better than factoring. They still take a percentage and then issue you a T check, comchek, or a regular check in the mail. So 24 hour pay goes out the window with a regular check. A comchek is going to run 3.50-$10 for a fee, on top of what they take from your settlement. If you're having problems with cash flow talking to a bank is a better route. Or hooking up with a dispatching company that pays every week and offers a fuel card. You may only get paid a small amount until your pay catches up with your fuel purchases but it solves a cash flow issue. I don't think highly of factoring or brokers quick pay. Some are decent others will throw you to the wolves. Yes you will give up a percentage dispatching if you can't get a loan but once you get over that hump and get some money built up to operate on it was worth it in the end if you couldn't get a loan. Every trucker has cash flow problems at one point or another. Its part of the game.

One of the biggest problems in transportation is the changes. Used to be no brokers. It was all direct for independents. Back in the day you got 50% at pickup 50% on del every and those were the good days. Then somebody decided it wasn't broke so it needed to be fixed. So we got brokers. Now at times a customer will pay a broker in 15 days. Broker has the carriers money and throws it in an account to colletct interest. Then at 30 days they put the check in the mail. 6 days later it arrives. Carrier takes it to the bank 7 days later it clears. Total time to get your money is over 40 days that's complete b.s. I read one carrier agreement about freight collect. If I were to deliver and it was collect I had to pickup the check and mail it to the broker. They still would NOT pay me for 30 days...even after they were paid the same day how fair is that? See why I don't like brokers? This industry is very very backwards to say the least. I would say write your paper on the good old days and compare them to what trucking is now. And show people what we go through and how screwed up it is. Not to mention everybody wants freight moved for nothing. I don't run for free and have a family to feed and bills to pay just like everybody else. Yes I realize the cost of freight determines the cost of stuff in the store. But hey if it wasn't for us out here working nobody would have anything on those store shelves. Well my rant has just gone off topic so I'll leave it at that hopefully I have given you a small amount of information and help. Good luck on your paper.

 

I should think that it would be easy to find a wealth of material for a thesis on inefficiency in the transportation sector. I agree with most who have said that either quick pay or factoring isn't the best thing to do. You're going to leave 2-10% on the table, but if you need the cash flow, you do what you have to do. However, if you gross $5000 a week, 44 weeks a year, at 5% that's $11,000 a year for one operator. If 5000 guys are doing it? Pretty big inefficiency right there.

 

I would not say that factoring or quick pay is inefficient. It can actually be very efficient. I would not pay a factoring fee or quick pay and then have to pay additional charges for a comcheck. When I used a factor, I sent the bills and had money in my bank account the day after they received the bills. When I use a quick pay, I will have access to my money in 24-48 hours. With the factor I paid 5%. Most quick pay that I have used discounts 1 1/2-2%. One discounts 4%. Having your money in a day or so is actually rather efficient. Many manufacturers offer a discount of 1-2% if the invoice is paid within a specified time frame, such as 7 or 10 days. Major manufacturers also factor receivables. Whether you factor or use quick pay, you don't have to repay the money and are not using up your credit. Some will use a commercial line of credit, but you will still need to check credit, bill and invoice the customer and collect the money. If you are not paid within a specified time frame, you will need to rebill and perhaps follow up with phone calls. When you factor they handle all billing and collections. Using quick pay, you send in the paperwork and they give you a comcheck number or mail you a check. Either way, your work is done.

When you discount your freight bills, you need to consider the value of your money. There is a cost/benefit to consider. It also takes time to invoice and follow up on receivables. Your time also has value. Someone has to do the billing and collections. If the factor is non recourse then he accepts all responsibility for collections. If you use a line of credit or accept recourse, then you could be on the hook for any charge backs.

Lack of cash flow can kill a business. There are ups and down to any business venture. Having access to capital can make things run much more smoothly. You do lose some revenue in fees, but it is less expensive than hiring someone to perform those services for you and you don't need to pay a factor or broker benefits or pay for their workers comp. Some people look at these issues wrong. If you have the time and money to run your business without having to factor or discount your bills, then that would probably be best.