I am currently working on obtaining my own authority.[ Flatbed freight ] Anyone here had experience with factoring companies? Good , bad , ugly ? What [or who] do I avoid ? Any one you recommend ? I am starting out with bootstraps so I will need to get money flowing back A.S.A.P. for fuel, expenses ect. Any help is certainly appreciated. Thanx ! Bruce

 

This is not the best time to get your authority without any money. However, there are two types of factors, recourse and non-recourse. You need to be careful because some have some fairly steep fees. I prefer a non-recourse factor. The non-recourse factors usually charge a higher fee but if the shipper or broker fails to pay then you don't have to worry about them charging it back to you. Those that are recourse usually only advance a certain percentage (usually 80-90%) until the invoice has been paid. If they fail to pay with a specific time frame then the factor will charge it back to you. Their fee is directly tied to how long it takes the shipper or broker to pay. The longer time it takes the factor to receive payment the higher the fee. Once the factor has been paid they pay the balance owed to you less their fee. With a non-recourse factor they deduct their fee and pay you the difference. Most factors seem to charge from 1-8%. I have used a factor for some loads. I have never factored every load. Some factors require you to factor all of your receivables and others have a minimum amount of business you must do each month. The factor that I used did not have a minimum nor did they require that I factor all of my loads with them. I would not want to do business with any factor that required me to send them all of my loads. I have some companies with whom I have done business over the years who pay fairly quickly and others who pay COD. I see no need to pay a fee to a factoring company for those accounts. I have known some who factor all of their receivables. That is their decision, but you will give up a lot of profit when you factor all of your loads, especially with the cheaper rates we are currently seeing.

 

First off, if you don't have to factor it is better not too. If you do have to, in my personal opinion, it is better to go with recourse. Non recourse is not as it seems. They are truly only non recourse if the broker can't financially pay. A lot of times that is not the reason they don't pay. If they stiff you, and can pay, then non recourse becomes recourse.

I am an agent with a factoring company, if you'd like I can set you up with a quote and everything written out. A lot of companies have hidden fees; I can get you a written quote with everything explained which you are more than welcome to take to compare with other companies.

Send me a PM and I will get in contact with you.

 

I have never had a problem with the factor that I used as long as the paperwork has been in order. The problem with some of the recourse factors is that they can charge you a weekly fee for each week they wait until they receive payment. I looked at one that charged 1% per week. Consider the time it may take for them to receive your bills, invoice and mail time it could take up to 10 days for the broker or shipper to receive the bills after delivery. Many operate on a net 30 days to pay. If they pay as agreed then it could take another week or so for the check to get back to the factor. It could take a minimum of 45 days for them to receive payment from the time you delivered the load. If a factor charges 1% per week then it could cost you 6% with this particular factor. If payment doesn't come for another 2 weeks then you could be looking at 8%. Some of these recourse factors will charge back an invoice to you after 60 days. It has been some time since I have looked at a factor but if there are some who charge perhaps 1% per month then it might be a good way to go as long as there are no other hidden fees. Recourse can work for you as long as the broker or shipper pays quickly. Personally, I prefer the non-recourse. That way I don't have to worry about it. I send in the bills and get my money. With the recourse you may not know exactly how much you will pay until the factor receives their money. Non-recourse I know exactly how much I need to pay. If I were you I would check around with different factors and go with the one you are most comfortable. Terms and fees can vary from one to another.

 

Why not do a regular loan? 3% per invoice is 36%apr(if paid in 30)
Factoring you just borrow the same money over and over again for very high interest. Of course if you have no credit that is the only option.

 

If your resources are limited then you may get a line of credit to finance your business. A home equity loan is another possibility. Money is still tight so that may not be an option for you. A business line of credit usually requires a minimum of 2 years in business. If you use either of these options you will need to check credit and do all billing and collections. You assume all risk for payment when you use your own money. Some banks may factor your receivables for you. Check with your local bank to see if they can assist and note their terms. One advantage of factoring is that they check credit for you and you can see how long it takes for some brokers or shippers to pay their invoices. Once you see how they pay and you get your money built up you will know whom to extend credit. There are some large corporations who regularly factor their receivables. In fact, some factors, especially the large banks, may not factor unless you can do at least $250,000 or more each year.

 

Bruce, All of the advice you have been given about factoring companies is correct and you have to decide which way to go. My suggestion is that you find a "factoring bank" versus a "factoring company". A factoring company gets their money from the factoring bank. Factoring company charges you 4-5%, and they get it from the factoring bank for 1-3%. Ask the factor if they are a factoring company or factoring bank. Factoring is necessary until you can plan to get away from it. Contrary to popular belief, a lot of big carriers use factors, but they use factoring banks and not factoring companies. Some factoring banks will take small carriers.

 

I wouldn't call what a larger carrier does factoring, It's a accounts recievable LOC at a rate far under 1-3% a month(12-36%)

 

Chris, You're talking about a line of credit, I'm talking about factoring. I have been upper management for a few carriers with 700 + trucks in my past. One owner had 3 trucking companies and several NL shops throughout the US, yet he still factored every invoice to keep the bills paid timely. My point to Bruce is not to take the 5% factoring company, but find the factoring bank.

 

This is the main reason I don't like factoring agreements. the factoring company starts counting the 30 days on the day they pay you, but brokers don't start the clock until the day they receive the BOL in the mail. Not only that, most brokers run their payables once a week. They gather up all the invoices that reached 30 days during the previous week and print all the checks on, say, Tuesday. So if your invoice hits 30 days on a Monday, the check gets printed and mailed on the following Tuesday. That adds another 8 days on top of mailing time. And the factoring company adds fees for that extra time.

And if you have a 5% non-recourse agreement that lets you choose which BOLs you want to factor, they still have an implied lien on the bills you DON'T factor. That could get messy if you have a dispute.

If you can afford it, your better off not factoring.