Factoring company good or bad idea??????

Daisy, there is an old saying with factoring, your out of business you just don't know it yet. I had to use them for about 5 months, what a waste of money, fee for this , fee for that. Glad I got credit now with my bank

Factoring is interesting topic. Two kinds I know about is recourse and non-recourse. Recourse means that after a time period, like 90 days, if the factoring company is not collected the payment, they in turn take the money back from you. Non recourse means the factoring company is on the hook, if they can't collect, then they lose.
Rates vary, seen some as low as 1.5% some as high as 5%. Just remember that is for 30 days, and the interest is figured per year, so a 5% factoring company is actually charging 60% (5 x 12) Some want a contract to factor EVERYTHING you haul, others don't. Most want to know and approve the transaction before you haul the load. A bank loan to cover the operating expenses usually is cheaper. BUT, it probably would be nice to have a factoring agreement just in case you absolutely can't wait to get paid. Procede with caution.

I think dealing with a finance company that can touch the rates on your loads is a very bad idea. there has got to be a better way.

My tought is a factoring company is right up there with a loan shark, but i do understand why some people need to use them

sorry, should have said interest on non payment

Factoring is an individual choice. Weigh out the Pros and Cons of each choice.

Pros:

Your cash does indeed get into your account quicker. (Very important for a small business).
If you choose the right style of factoring you are not on the hook if the shipper or broker goes under.
If you choose the right style of factoring you are not bound to sell all your paper or customers.
You do not have to go ask the bank for credit line (if you don't have any credit they will not give you such).
A good factor will not nickel and dime you on everything.

Cons:
Your customer base may be limited to what the factor is willing to buy notes on.
If you run the interest cost you will be overwhelmed by what you deem are loses.
If you can wait on your money for 30-45 days or longer you may be better to put the money into your pocket vs the factors
Some customers out there don't like dealing with factors (even thought they themselves may be using one as well)
Some factors hold out a reserve fund that if you leave them you may never see your reserve.
Some factors nickel and dime you every chance they get.
The factor will be filing a lien on your company in case you try to defraud them. (You can thank Arrow for that one)

I personally do both, I have some large name shippers that want me to carry the paper for them for 90 days. I will sell of their paper to my factor at the agreed discount. He does not hold out a reserve, he does not nickel and dime me for everything. He does not require that I sell him all of my accounts. I just look at his company as an extension of mine. The times that I sell paper to him I no longer have to worry about tracking the payment of that paper and would spend more money in office personel to do so vs selling it to him.

That is my take on factoring, I have factored not only in trucking but in other business ventures as well. Coporate America expects 30-90 day terms and will often times get you on the hook for quite a bit of cash before you start getting your money. They used to have to pay carriers within 14 days I believe or it may have been 7. Deregulation stopped that, they used to have to pay the carrier interest, but you hardly ever see that anymore as well. Factoring used to cost a lot more than 2%-6% (average). Times have changed so have the prices.

I suppose a bigger question should be why should I carry a note for 90 days for a Multi-Billion dollar company?

I used to sell some of the biggest banks notes as a contractor in construction.

It is funny that you believe that a bank would give a line of credit on a note that another bank seems to want to drag their feet on.

I have been in business a long time and have factored on and off down through the years. I guess because I factor certain notes that I should not be in business. I guess I should go back to buying stocks in a crappy market, or maybe I should go back to building Multi Million dollar houses. I don't know everything, I just know what works for me.

I bet you would tell me that because we run Volvo's that we are not real truckers as well.

How can the factor be getting all of my profits if I have built that into my cost?
I work for the factor, wow that is a good one right there.
I have never filed bankruptcy in my life, unlike the almighty Rumpster.
I have always been able to pay those that work for me their wages as earned or agreed upon.

Banks extending credit lines based upon contracts, well we must be back priot to deregulation days when your authority was worth 1 M. Most banks today want to extend a $20,000 credit line for $500,000 in accounts receivables. That is what BOA offered me and wanted to lien on my company as well for that incredible credit line. Funny thing is I can use my AMEX Gold card to go out an buy a new truck if needed, I just bought a new trailer on my GE Cap credit line. I think you are right I should go lease on to another company because I factor notes from time to time.

CASH IS KING!!! I don't like giving shipper nor brokers any longer then 15 days to get my money. If they want to take longer I just raise their rates by another 15%. That more than covers my factoring cost. Maybe we should ask some of the guys in my group that have gotten stuck with $15K - $50K in worthless notes because the shipper kept using them until they filed bankruptcy. I sir at least can say that I have always received every bit of money that has been owed to me ever since I started using a factor. That would be both in construction, and trucking. Previous to using a factor I too had taken as much as a $50K hit from you guessed it (A BANK).

I have learned to exercise prudence when it comes to my money. I would highly recommend that others do the same.

Amen. I have some customers we signed contracts with that say they pay within 30 days. Sometimes they have run 90 days or a little longer.

I whoop and holler like a gut shot Comanche over money.

Alfred,
As you know I am a PROUD member of the Independent Carrier Group. I wish more would join us. I don't think that I even register on people's radar even though I feel I have been a leader in trying to educate in the difference between a broker a price of garbage low life like TQL or UTI or PLS and the list goes on. I will continue to rally against these type of people in our industry.

Art Pfluger

As a "small outfit" I don't know how you let someone get into you for $65,000.00 to $85,000.00.

MrHughson,
It is very easy 7 trucks a day running for the same account grossing $1000 or more a day.

Art Pfluger

So far I haven't needed to all brokers that I use pay a week after they receive my paperwork except for 1 or 2 that takes a month to get paid

Hey Chester,

Is that you on 61 with the tractors on one side of the road and the truck and trailer on the other in front of the house? If so, I pass by 4 times a day.

Small world.

Barry