Home > Forum > Factoring Company Good Or Bad Idea??????

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

Mar 18, 2016 at 12:40 PM CST
Hey everyone I am new to this whole situation and was needing some input on whether it was a good idea to use a factoring company or not, have no idea how this whole business works since I used to haul crude oil and just recently decided to give grain a try and was needing some help. I would greatly appreciate any input.
Replied on Fri, Mar 18, 2016 at 03:27 PM CST
+ 2
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
Replied on Fri, Mar 18, 2016 at 06:23 PM CST
+ 1
I haven't factored anything yet. There was a few times the wolf was scratching on the flour barrel but we made it without factoring.

The one that PMO are the brokers who will quick pay on their own load for 2% or 3% of your freight bill. Why in heck should I have to pay him to get my money on his load.

Replied on Fri, Mar 18, 2016 at 07:43 PM CST
+ 2 - 1
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.
Replied on Mon, Mar 21, 2016 at 09:40 AM CST
Desperation.
Replied on Mon, Mar 21, 2016 at 04:59 PM CST
+ 1
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.
Replied on Mon, Mar 21, 2016 at 08:22 PM CST
Originally Posted by: NANCY HARDER
Quote: "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."

You're right Nancy but some folks go for it hook, line, and sinker.
Replied on Tue, Mar 22, 2016 at 12:02 PM CST
Originally Posted by: NANCY HARDER
Quote: "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
Replied on Tue, Mar 22, 2016 at 12:39 PM CST
+ 2
Originally Posted by: JERRY BECK
Quote: "You're right Nancy but some folks go for it hook, line, and sinker."

yep and when i give a load to the carrier that uses these sharks the agency pesters me day in, day out for the paper work, they don;t even know how proof of delivery works! one of them actually tried to threaten me with non payment if i didnt give them the paperwork that was late from the carrier. i had to basically explain to them who was doing work for whom......i have no use for people who prey on an industry and don;t even know how the job gets done.
Replied on Tue, Mar 22, 2016 at 12:40 PM CST
Originally Posted by: NANCY HARDER
Quote: "yep and when i give a load to the carrier that uses these sharks the agency pesters me day in, day out for the paper work, they don;t even know how proof of delivery works! one of them actually tried to threaten me with non payment if i didnt give them the paperwork that was late from the carrier. i had to basically explain to them who was doing work for whom......i have no use for people who prey on an industry and don;t even know how the job gets done."

sorry, should have said interest on non payment
Replied on Tue, Mar 22, 2016 at 02:50 PM CST
They are merely a middle man. Nothing more nothing less. We deal with them only when we have to as some carriers choose to use them. Have never used them for our recievables nor do we ever intend to. I foresee them as a bad business decision. You are doing nothing more than advancing your own self money. They operate on a high volume low margin, (rate of interest they charge as the %) I see no need for them if you run your business properly. They promise the world and float money. Nothing more than a pay day advance loan operation that you see in the strip malls. Your better off taking on another credit card as they all offer no interest on the first 30 days. Its a standard trap, once your in with them you will be reliant on utilizing them until you finally collapse as you are always playing the catch up gain. I understand businesses go through difficult times, but look to all other options before going this route. I think you will be better off in the end.
Replied on Tue, Mar 22, 2016 at 04:00 PM CST
+ 1
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.

Replied on Tue, Mar 22, 2016 at 09:22 PM CST
If you use a factoring company,then they get all of your profits. You work for them. A short trip to bankruptcy. if you can't carry 90 days yourself(repairs,payments,fuel,insurance,drivers wages etc.) then you need to go lease on with someone until youI can afford it. if you have a contract then any bank will give you a line of credit up to the amount of the contract.
Replied on Tue, Mar 22, 2016 at 10:07 PM CST
Originally Posted by: DARRELL KENNEMER
Quote: "If you use a factoring company,then they get all of your profits. You work for them. A short trip to bankruptcy. if you can't carry 90 days yourself(repairs,payments,fuel,insurance,drivers wages etc.) then you need to go lease on with someone until youI can afford it. if you have a contract then any bank will give you a line of credit up to the amount of the contract."

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.
Replied on Tue, Mar 22, 2016 at 11:05 PM CST
+ 1
I said it before will repeat this again. Factoring is but a tool if you use it wisely. About 5 years ago I had a contract with a fortune 500 company, they got me for $85000. Nine months later another similar company got me for $65000. If you really believe a bank will loan on a contract your full of ???? Or I would like to know your banker. It's taken years to even attempt to get around those loses. I had approached many banks with these contracts and no one would give me any credit based on these written contracts. As much as I respect Jason I know he is gonna call me on factoring. I hope it is just a respectful difference of opinion. A factoring company could have mitigated this, but I went for credit lines instead of factoring and suffered and still suffer for my ignorance. Dealing with shippers direct can be great and can bury you in a heartbeat. As Scott said cash is king. As for the Hollicky person I understand your thoughts, but if your a small outfit I don't have the legal system to make some credit decisions correctly. A factoring company can allow me to haul for a new client and see how they are going to pay before I take the risk solely on my own. Just be cause you factor one load doesn't mean you have to factor for life.
I can only hope that Jason and others don't live with the loses I have. I won't expound on what I have actually lost over these 2 bad debts when giving up a few dollars might have saved my family years of hell. And yes every driver, contractor was paid.
Just a tool when you have limited knowledge into corporate ruthlessness.

Art Pfluger
Replied on Tue, Mar 22, 2016 at 11:25 PM CST
Originally Posted by: ALFRED JORDAN
Quote: "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.
Replied on Tue, Mar 22, 2016 at 11:43 PM CST
There are good factors and bad factors. The good ones don't hold cash reserves, and purchase the notes and assume all the risk. (Non-recourse, and yes they really do exist)

There are good brokers and bad brokers. The good ones take the carriers price and mark it up, the don't co-broker and they pay quickly. (Yes they do still exist, even though they are very rare anymore)

There are good shippers and bad shippers. The good ones pay the carrier within 15 days or less upon receipt of paperwork. (Yes they do still exist)

There are good carriers and bad carriers. The good ones keep their equipment in good working order (getting harder to do with the cheaper prices or days lost). They pick up and deliver as agreed. (Yes they do still exist although this is getting to be a rarity as well)

What do all these things have in common? They are harder to find in this world today, many have turned their back on being honorable and are just out to make the most money off of others without giving back to the very ones who make them the money in the first place.

I have been on the bad side for Coporate America as a hatchet man in the past, I am currently getting offers from corporations to come and do it again. My wife told me last week that she does not want me to do that job again. I am very effective at being the hammer or hatchet. She told me that what we have started with the Independent Carrier Group is what I am supposed to be the hammer for. I am to help all of us small business owners, shippers, brokers, receivers, and carriers come together and operate our business with Honor and Integrity. Far too long Mega Corporate America has been controlling our lives, through finance, government, and keeping us all constantly believing that we are each others competition while they have their back room meetings to control us.

A lot of you have wondered why I can say some of the things that I say and get by with it. Here is the news flash Mega Corporate America knows exactly who I am, they have hired me many times in the past to solve their problems. They are actually more worried about me than I am them. They fear us small business owners realizing that we far out number them and that if we decided to work together that we could take back what is rightfully ours Freedom with Integrity.
Replied on Wed, Mar 23, 2016 at 12:23 AM CST
+ 2
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
Replied on Wed, Mar 23, 2016 at 12:36 AM CST
+ 1
Art it is you who schooled me when I first decided to do hopper. The phone conversation we had a couple years back did me worlds of good. You and Jason railing on me taught me a lot. Jason and I were just talking about this today. I told him how I had to retructure my thought process and it was you guys along with some others that brought me this far. I refuse to take the credit for all the good mentoring that you guys gave me. I am proud to be a co member with you and the others at the Independent Carrier Group. We need strong leadership there to accomplish the mission and task that is at hand.

Replied on Wed, Mar 23, 2016 at 08:06 AM CST
- 1
Originally Posted by: ROSE PFLUGER
Quote: "I said it before will repeat this again. Factoring is but a tool if you use it wisely. About 5 years ago I had a contract with a fortune 500 company, they got me for $85000. Nine months later another similar company got me for $65000. If you really believe a bank will loan on a contract your full of ???? Or I would like to know your banker. It's taken years to even attempt to get around those loses. I had approached many banks with these contracts and no one would give me any credit based on these written contracts. As much as I respect Jason I know he is gonna call me on factoring. I hope it is just a respectful difference of opinion. A factoring company could have mitigated this, but I went for credit lines instead of factoring and suffered and still suffer for my ignorance. Dealing with shippers direct can be great and can bury you in a heartbeat. As Scott said cash is king. As for the Hollicky person I understand your thoughts, but if your a small outfit I don't have the legal system to make some credit decisions correctly. A factoring company can allow me to haul for a new client and see how they are going to pay before I take the risk solely on my own. Just be cause you factor one load doesn't mean you have to factor for life. I can only hope that Jason and others don't live with the loses I have. I won't expound on what I have actually lost over these 2 bad debts when giving up a few dollars might have saved my family years of hell. And yes every driver, contractor was paid. Just a tool when you have limited knowledge into corporate ruthlessness. 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.
Replied on Wed, Mar 23, 2016 at 08:54 AM CST
1 truck making $4000.00 per week would be $16,000 by the end of the month.
4 trucks making the same money would be $64,000 by the end of the month.
10 trucks making the same money would be $160,000 by the end of the month.

We have members of the Independet Carrier Group that range from 1-80 trucks. These are all considered small operations. As you can see the numbers can start adding up real fast and if you have been doing business with that customer for a while you tend to get lax. This has been the downfall of many a small business, when times start getting tough for a shipper or broker, the trucker will always be the one to take the hit. When bankruptcy occurs it will be the small Independent Carrier that will be left holding the bag and they will be on the bottom of the collections list on that bankruptcy.

The original poster was just asking about factoring and instead of helping her make a logical business decision a lot of us decided this was a good time to sling mud at one another. I explained it the best I could, the pros and cons. I and Art have stated our experiences with variious situations, we just don't want to see a start up Carrier end up in desperation because they may not have the cash to float 30-45 days.

Factoring is just a business tool that when used correctly can enhance your buisness not take away from it. I always suggest to individuals to ween themselves off of the factoring process when they can afford to do so. For me that would be when I had a cool 2M laying in my reserve account not doing anything, it would make sense for me to risk that money to make 5% more to myself.

It is the one that is in desperation or the one that is only trucking part time that errodes the rates for the rest of us. When you are educated and can make logical decisions and understand the need to keep cash flowing in a money hungry industry, you will succeed. When you are desperate because that money eating wench (your rig) started to eat your profits, that is when the shippers and brokers will win on rates. It becomes a vicous cycle until one day you find yourself on the side of the road and out of business. Having the cash to keep your rigs moving, taking trucking serious as a business and not a hobby or gap fill. These are the individuals that thrive and survive even in the bad times.

CASH IS KING, AND I WANT MY CASH IN MY CASTLE!!!
Replied on Wed, Mar 23, 2016 at 05:23 PM CST
MrHughson,
It is very easy 7 trucks a day running for the same account grossing $1000 or more a day.

Art Pfluger
Replied on Wed, Mar 23, 2016 at 05:53 PM CST
I've got one customer who sends out checks on the 1st of every month. During the warm months it's nothing odd for this customer to be $100k behind and that's with just 5 trucks running for them.
Replied on Wed, Mar 23, 2016 at 10:58 PM CST
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
Replied on Thu, Mar 24, 2016 at 12:58 AM CST
+ 1
My apologies gentlemen. The size of the fleet certainly would matter.