Factoring

[flattop40]

With the thread that was shut down last week there was an aspect of it that got me to thinking. I may be out of the loop as do the big guys use factoring? I would hope not. And I would not work for someone who has to factor to pay me on a weekly basis. This indicates to me the company is unstable to handle things with any financial hiccup. Just my thought. I will sit back and let ya'll bash me.

 

[OntarioVanMan]

With the thread that was shut down last week there was an aspect of it that got me to thinking. I may be out of the loop as do the big guys use factoring? I would hope not. And I would not work for someone who has to factor to pay me on a weekly basis. This indicates to me the company is unstable to handle things with any financial hiccup. Just my thought. I will sit back and let ya'll bash me.

Not me buddy.....there is a cost to factoring...and WHO pays that cost? I am betting not such a carrier that practices this concept....either the customer with inflated rates and how long will they be a customer? or the poor O/O with deflated rates?

With a well organized business plan no O/O should need the cash that quickly as to lose 3-6 % of the gross...it makes no sense....and if you are on the ropes....let go and go down with the ship.....tough luck...

 

[turritrans]

When some customers take 45-90 days to pay and some carriers pay settlements in one week, unless your a large corporation like fdcc or panther it is common for most carriers to factor or use a line of credit from their bank to fund portions of the operation. Factoring or using a BLOC in no way indicates a company is unstable. In fact a lot of companies in a lot of industries factor. Most manufacturers do this because the auto companies take 90 plus days to pay. I would respectfully strongly disagree with you assumptions.

 

[OntarioVanMan]

I don't think banks charge interest on a line of credit on EVERY transaction like factoring does....

I'd love to have enough cash and get into factoring or loan sharking....4% on every BOL compounded? what a scam...

 

[lhannah]

With the thread that was shut down last week there was an aspect of it that got me to thinking. I may be out of the loop as do the big guys use factoring? I would hope not. And I would not work for someone who has to factor to pay me on a weekly basis. This indicates to me the company is unstable to handle things with any financial hiccup. Just my thought. I will sit back and let ya'll bash me.

Are you speaking as an O/O that would not work for a carrier that factors?

Or as a driver that would not work for a fleet owner that factors?


As far as carriers who factor, what alternatives are out there to allow a start-up to break into the business. As turri said, it can take 90 days to collect. Do you want to wait 90 days to get paid for certain loads?

My company has an unusual delay in pay for the industry but that is to avoid the cost of factoring. It kills us in recruiting but we try and make it up in other ways. We are actively working towards a solution to the problem. However, the actual amount of funds needed to comfortably back a small fleet can be much higher than one would think.

 

[OntarioVanMan]

Are you speaking as an O/O that would not work for a carrier that factors?

Or as a driver that would not work for a fleet owner that factors?


As far as carriers who factor, what alternatives are out there to allow a start-up to break into the business. As turri said, it can take 90 days to collect. Do you want to wait 90 days to get paid for certain loads?

My company has an unusual delay in pay for the industry but that is to avoid the cost of factoring. It kills us in recruiting but we try and make it up in other ways. We are actively working towards a solution to the problem. However, the actual amount of funds needed to comfortably back a small fleet can be much higher than one would think.

Why not a line of credit from a reliable source at a far less rate.....a million line of credit should cover it if you are just a small outfit....If your credit is that bad...I don't want to contract with ya....

 

[lhannah]

Why not a line of credit from a reliable source at a far less rate.....a million line of credit should cover it if you are just a small outfit....If your credit is that bad...I don't want to contract with ya....

Have you ever applied for such a line of credit? A new carrier doesn't have any assets or much of credit history. So, unless you want to include your personal credit and your personal assets (home, cars, etc.) there is very little chance of securing a business credit line of that sizable amount.

 

[BillChaffey]

I believe if you go to the SBA and apply for a loan. Are successful in getting the loan and you fail at your attempt in business. Your still responsible for the loan. If you don't have the faith to put up something of your own to start a business you need to stay in a one person operation.
My opininon only.

 

[lhannah]

I believe if you go to the SBA and apply for a loan. Are successful in getting the loan and you fail at your attempt in business. Your still responsible for the loan. If you don't have the faith to put up SOMETHING of your own to start a business you need to stay in a one person operation.
My opininon only.

Agreed, sort of. We all make sacrifices in order to jump into this business. Placing your personal life on the line is done just about any time you take on a new career. Esp. one as volatile as expediting can be.

However, it wouldn't be putting up something. It would require putting up everything to secure a million dollars. Now, there are ways around this but they take some time. That is why companies use factoring.

 

[BillChaffey]

Why not work out something with your Financial provider where your with in your means. Grow at a more moderate rate, to keep your overhead lower?.

 

[fastrod]

I have used a factoring service since I started 5 years ago. Costs me 5% and it beats waiting 30 to 60 days to get paid. Not for everyone but works great for me.

 

[davekc]

When some customers take 45-90 days to pay and some carriers pay settlements in one week, unless your a large corporation like fdcc or panther it is common for most carriers to factor or use a line of credit from their bank to fund portions of the operation. Factoring or using a BLOC in no way indicates a company is unstable. In fact a lot of companies in a lot of industries factor. Most manufacturers do this because the auto companies take 90 plus days to pay. I would respectfully strongly disagree with you assumptions.

The above would be the correct answer. It is obviously smaller carriers that engage in using a factoring company but that exclusively wouldn't determine how stable they are. Most try to get enough behind them as to not have to do it. Takes awhile for smaller carriers to reach that threshold.

 

[Turtle]

Yup. Factoring, or some version of it, is very common with carriers both large and small, either by direct factoring or using "commercial paper" (those short term loans that banks stopped making when the economy went into the toilet a couple of years ago). For many businesses, the commercial paper loans are routine for payroll and other expenses. For smaller and newer carriers, direct factoring is used a lot, but once they grow or have a track record under their belt they'll go to the commercial paper short term loans and pay those back as the customers pay the carrier. It's like a line of credit, but slightly different.

 

[turritrans]

Have you ever applied for such a line of credit? A new carrier doesn't have any assets or much of credit history. So, unless you want to include your personal credit and your personal assets (home, cars, etc.) there is very little chance of securing a business credit line of that sizable amount.

This is very true Levi. After the financial meltdown I heard of banks just pulling these BLOC's from companies in certain industries that are considered high risk, trucking being one of them.

The thing with factoring is for start up companies yes the fees are high and cut into profits dramatically, but it is a must to keep up the cash flow. There are a lot of misconceptions about factoring. If a company can last a few years and as they increase the amount of cash flow being pumping into the factroing company, the percentages come way down in line with BLOC's. Also depending on what company you decide to work with there can be fuel and driver settlement programs associated with the factoring and funds can be loaded on fuel/settlement cards that can be a very slick and affordable tool for many carriers to utilize. These programs emulate much of what the largest carriers supply to their ops as far as services and settlements.

 

[Jefferson3000]

Not me buddy.....there is a cost to factoring...and WHO pays that cost? I am betting not such a carrier that practices this concept....either the customer with inflated rates and how long will they be a customer? or the poor O/O with deflated rates?

With a well organized business plan no O/O should need the cash that quickly as to lose 3-6 % of the gross...it makes no sense....and if you are on the ropes....let go and go down with the ship.....tough luck...

Have you tried to secure a loan from a bank for YOUR endeavors recently? The banks have been given your taxpayer money already, so they no longer see the need to operate in the risk of loaning money to anyone. They just live off of all of those new fees they charge to checking accounts that used to be free.

When some customers take 45-90 days to pay and some carriers pay settlements in one week, unless your a large corporation like fdcc or panther it is common for most carriers to factor or use a line of credit from their bank to fund portions of the operation. Factoring or using a BLOC in no way indicates a company is unstable. In fact a lot of companies in a lot of industries factor. Most manufacturers do this because the auto companies take 90 plus days to pay. I would respectfully strongly disagree with you assumptions.

Hello Vince. It's good to see you on here. I definitely agree with your response. I wanted to add other benefits that a company might receive by factoring:

- Full-time accounting staff

- Bill collection (if required)

- Quick pay fuel cards for drivers when they need it.

All of these things figured into the rate that is deducted. And yes, many firms offer better deals as your volume increases. Some of the larger 3PLs even offer their own quick pay programs to their partners based on the volume of freight they move. Some of these are as low as 1-1/2%

 

[turritrans]

Hey Jeff

Always a pleasure!

 

[CharlesD]

I'm with Jeff and Vince. A factoring company provides a lot of services besides just quicker pay. When I started running on my own, I didn't factor much, but when I started taking on other drivers, it made perfect sense because I was still driving and it was easier to have the factoring company take care of paying the drivers their cut from the loads I turned in. Sure, I'm parting with a certain percentage of the loads, but I also don't have to pay an accounting person. I think that's worth something.

 

[Rocketman]

I considered getting my own authority for a while. I researched it quite a bit and as a solo o/o, I felt that one of the hardest things for me to keep up with would have been account recievables. I found that there are factoring companies that offer no recourse factoring for 5%. There is a good chance that I would have used one of those companies.

Sure, it is expensive, but I would have rather been looking for loads than checking to see what paperwork had been shuffled and what money had been or needed to be collected. For what it's worth, if I had decided to do this, I would have been more than able to deal with the cashflow issues for a single truck. I saw factoring as a way to farm out the entire billing/collecting side of the business. That is definitely the part of having my authority that I would hate and loathe and obviously suck at. So why not farm it out?

Also worth noting. The company I am leased to is one of the best in the business. If I named them, I know many of you would recognize them as one of the best small fleets out here. I have never had any pay issues with them at all and have never, ever heard of anyone who has. I also notice in my pay envelope some mention of a financial institution that I assume to be a factoring service. I think a lot of their work is probably being factored. To feel like this shows weakness in a company is somewhat absurd imho.

Personally, I couldn't care less how the carrier finances their operations. I don't feel like it is ANY of my business in fact. As long as my money is there when it's supposed to be, I'm a happy camper.

 

[OntarioVanMan]

Ya see...my learning curve has been expanded...

There are so many details the common folk don't see or not exposed to....so much to learn yet...but if ya don't discuss it one will never learn...Thanx for the "adjustment"

 

[scottm4211]

Ya see...my learning curve has been expanded...

There are so many details the common folk don't see or not exposed to....so much to learn yet...but if ya don't discuss it one will never learn...Thanx for the "adjustment"

You're one of the few on here that will accept new ideas or different views rather than just dig your heels in. kumbaya