Factoring
I’ve been in business 12 years and have never factored anything.
Those that do Factor
What is the biggest motivator for you?
Cash Flow?
Collections?
Your Credit?
Anything else?
Is it worth the percentage you pay out and that’s not hitting your books as part of your profit?
10
19 comments
• Jun '24
Cashflow is the main one, but it adds up at the end of the month.
7
• Jun '24
- I have been in factoring for the past 6 years. 3 on the Carrier side and 3 on the Broker side. This industry is extremely fragmented and back offices are run many different ways. That said, I think there are plenty of use cases for Factoring and even if a Brokerage has plenty of cash, I believe payments as a service will be more cost-effective through a payments vendor compared to paying AR/AP labor.
Factoring has rightfully earned a bad reputation. Good news is that it is changing for the better. For the record, if your Brokerage is cash-strapped and you have good credit, I would recommend having both a bank line of credit AND factoring (assuming no UCC conflicts).
Reasons to factor (in addition to cash flow)
- Building broker credit with Credit Bureaus
- more cost-effective than paying $4k+/month for full-time AR/AP labor assuming a rate of 1.5% of less
- Some factors like Haulpay underwrite your Shipper (not limiting a broker to what their assets can guarantee)
- Cut down on wasted time chasing payments and remittance errors
- Carrier payment portal / reduce time spent fielding calls for Carrier payment status
- With Non-recourse you have Risk mitigation
Lessons I have learned in factoring:
- Non-recourse > Recourse
- Ask not to have a UCC lien filed UNTIL you have signed an agreement
- Never sign a year+ long contract regardless of rate
- Never sign a contract with a termination fee
- Never sign a contract with a min. factoring amount required
- Brokers should not pay more than 1.5% of Shippers invoice (Haulpay's avg. Broker only using factoring spends between 1.1-1.5%)
- Find a factor that will match the quick pay rates of your top Broker (keep your payments in one place).
- You should be able to search credit and place NOA's without having to call/email support
- You should be able to get a human on the phone within 5-10 min.
- Fuel cards are great but discounts can be found outside of a factor
- Your factor should support both Carriers and Brokers (for various reasons)
Have a question about factoring? I have seen well over a dozen factoring company contracts. @me in the notes if you have questions.
562.261.2981
6
• Jun '24
very thorough explanation. Thank you
2
• Jun '24
Was credit and quick payments. But boy was I wrong about factoring. My first factoring messed up my credit because they didn't know how to factor for a brokerage.
The second company messed up the credit because they won't actually pay on the terms agreed and are holding carrier payments until they get the payment from the customer. They won't allow me to pay the carrier directly either because per the terms I can't pay anything the factoring company has. Now carriers are reporting me for none payment. It's been hell.
Wouldn't recommend factoring if you have the cash flow.
5
• Jun '24
, have heard the horror stories with some factoring companies. There must be an exit clause in the contract, suggest you exercise the clause based on the negative affect on your business.
5
• Jun '24
we’ve seen exit clauses with buyout fees of over $400k for a $500k/mo volume brokerage - be careful of predatory contracts in factoring, the contracts can be quite long and hard to read - chatgpt can help!
6
View 4 more replies
• Jun '24
, agree with the group, cash flow is the #1 reason. If you work with fortune 500 companies that have pushed terms to 90-120 days. In this case the shipper offers inhouse factoring generally at higher %. Even if you have a significant line of credit, factoring costs are generally less than the bank currently.
They key is weeding out the Bad factoring companies. Perhaps the group can suggest some good factoring companies. I will go first E Capital is the 3rd largest in NA. If you qualify they are one of the best I have worked with in my past. Can introduce people to Oscar one of the managing partners.
5
• Jun '24
- I have brought on dozens of former E Capital customers to Haulpay. E Capital has had impressive growth and offers a great introduction rate of around 1.5%. However, they are recourse and have ACH fees that can add up.
The most common reasons Brokers have switched from E Cap to Haulpay:
Rate (Haulpay is the lowest cost of non-recourse in the industry)
Service - this is the most common reason
TMS and Compliance Integrations
6-month contract Vs. 1-year contract
4
• Jun '24
Thanks for sharing.
2
View 1 more reply
• Jun '24 (edited)
Two main reasons I am looking at factoring on the Broker side is building credit rating and days to pay that would be posted on load boards. Also at the top would be the qualification or the factoring company clearing the shippers credit. And of course cash flow.
I am going to separate or split the meaning of Business Credit vs Credit rating and Days to pay on the load board. Some or a few will show Days to Pay, and a rating. this is important with posting on load bards for which carrier might look at you to haul your posted load. (If posting loads)
Business Credit is for all other business requirements. In my novice opinion.
Additional back office, collections offered with most factoring companies I have read up on.
5
• Jun '24
Oooo bring on the factoring questions!
4
• Jun '24
When I started a brokerage I used factoring for two reasons 1.) carrier trusted that they would get paid and i didn't have to pay carriers up front. 2.) Cashflow is king and I started it with $1800 not an ideal situation. My rate was 1.6% and that was actually really easy to just add into quotes.
4
I agree one of the top reasons is definitely cashflow.
2
• Jun '24
Cashflow
1
User
Your comment
Steven Tittle
6
Factoring
Freight Group
skool.com/freightgroup
Welcome to our Community of Logistics Professionals who know that in Freight...there is always more to Learn. A helpful group of Mentors and Mentees
Leaderboard (30-day)
powered by