Now, being in the trucking industry, you hear people speaking about factoring and the service companies that perform the financial task of factoring for the carriers; probably see 3-4 advertisements everyday in some shape or form looking for new customers for these providers on every magazine related to the trucking industry.
However, the reality of the factoring company, is almost a necessity in the market because every customer thinks they deserve Net 30 terms on every damn invoice you will ever write. Well, at least where I come from, we do not get lucky enough to have funding to cover our business 60-90-120 days out……….when new owners step out into the trucking industry as an independent, they are not told the reality of them needing to float their customers 30 days Net, for customer payment of invoices of their completed loads…….placing them at a disadvantage from the start.
Searching for help before they even get the new plastic pulled off their own business signs. Without some help many if not most would be done before they even wore the new rubber off their tires.
The Factoring Company, is exactly what it sounds like. They are the company that factors the accounts receivables, ie. Invoice Issued to Customer- for a percentage of the total billed amount. Now each factor is different, all have their own set of guidelines and policies. However, the factoring industry tends to agree on a few things, universally. Recourse funding is 3% on 30days net pay terms. Non-Recourse is 5% on 30day net pay. All have to approve- which customers they buy, and which ones (if not approved prior to booking) you keep the risk.
This is not saying customers do not prepay, pay sooner, pay upon invoice receipt, 15 net, 7 net, or even upon pickup/delivery……………even not saying that customers will not pay you bonuses at delivery, or with payment of invoices…………..Understand, I have just as many customers who do not mind prepaying on long term accounts, as those that demand net30 without any damn thing that I could sell to buy net 7 from the factor, due to their lack of customer payment terms. Hell I have had customers whose personal credit looked like someone left a brown loaf on Saturday night and was found 3 days later, yet their business was impeccable and they were given 45 net from a factor for the asking of the carrier, just to get them another 2 guarantees on net 30, and 1 truck booked for 3 loads……I could not believe it myself ……but I saw it with my own eyes, and lost $50 to the person who owned the business paying the bill…….on Net45 terms…………
Experience in knowing what to ask, what you can request, and what to do, how to do it, and growing with your vendors is the key with long term suppliers that have a history with you, know your business, know your goals, and how the financial markets work. They want you to grow and succeed, because when you do they do!
The Factor is a financial service industry supporter of the trucking industry. Actually, they factor for most industries including but not limited to the following:
- Government Contracting
They allow the business who will get funds over a specified period of time after, or during the contracted service, product, or whatever that they sold to the end buyer. The great thing is the End Buyer’s credit is the collateral and surety of the “paper.” They simply say does this customer pay their vendor for their services without hassle.
Now the Factor will do this by various ways. Some will buy “paper” that is Grade A only. Others may buy A-D and package them to maximize their return and their institutional buyers that invest short term for liquidity; ie- cash or cash like short term investment to move funds for a small profit for their investors in the specified fund or investment vehicle. However, most Factor’s will be buying for either their investment, their buyer’s investment, or the combination of them –monthly, bi-monthly, semi annually, or annually—–depends……however for your knowledge you need to understand the basis of the why and for whom. The rest comes with time.
Now, since you understand that all customers almost expect net30 terms on any invoice, almost to a sickening and degrading assumption……..how does the small fleets provide for their drivers, equipment, carrier needs, plus keep going to the next load……….
THROUGH PROPER UTILIZATION OF THE FACTOR, ALONG WITH CASHFLOW- BOTH DISCOUNTED AND REALIZED.
Small Carrier JimJohn is new guy on the block. Never being trained, and tired of the bullshit of running as a number. He has his truck paid for, but needs to call in to his Factor for customer approval prior to accepting any load he wishes to factor, for the discount of say 5%-nonrecourse. funding through fuel card advance, and balance upon delivery completion plus 48 hours–Customer is preapproved by JimJohn, from his forethought to call in potential customers to his factor 3 days before his maiden voyage.
EXAMPLE 1- Jimjohn has first load, customer desires net30- Jimjohn accepts and notifies the factor, factor already preapproved customer, and now phones customer for load information and copy of necessary documents. JimJohn already knows $1500 is fuel to the fuel card provided by Factor, 5% of the Gross Invoice goes to the factor for his short term financing of JimJohn’s necessary Cashflow and expense needs. On this load paying JimJohn $4000 Gross, net 30 after delivery signed confirmation. Factor will earn $200 of the Gross Invoice— due for paying JimJohn his balance 48hours upon completion, and giving JimJohn his cashflow “float.” Due to JimJohn opting for NonRecourse, Factor is on the hook for any due, if customer does not pay as promised. Hence, they have a major financial interest in the customers that Jimjohn does business with and they must be approved or JimJohn floats his own bill.
Factors play a vital road in the industry today. They are the credit gate keepers if you will of a financial market most do not hear of until you need to get to the next week, and keep your drivers and trucks moving. Maintaining cashflow until you are able to afford to float your customer base with full net30 terms, and do your own financing and customer rating for potential hazards.
Now say—-JimJohn — took the 3% Factor fee with Recourse.- He still gets funded as prescribed, following the factor guidelines for funding and completion. The difference is that at net 30, customer nonpayment; make JimJohn on the hook and responsible for the customers negligence. Factor will withdraw monies of the invoice, due from customer, back from JimJohn, and notify JimJohn of his necessary need to collect his money from the client due to their nonpayment. (typically, the factor has a 2-5day policy on nonpayment-there is usually an additional charge by a few points at most, as low as 5 days for .5% fee…….it all depends on the Factor contracted) However, Now Jimjohn calls customer immediately about his money for the invoice that is past due. Customer says yes it is due out on friday, would you prefer to come by the office and get funds tomorrow? JimJohn sends his second in command to drive and to receive full funding of invoice and a past due fee of just say 10% of the $4000 invoice. Note on our copy and his copy we received that past due fee for being past net 30 terms promised, and we give net30 as a courtesy not as a granted because. His new payment terms are Prepay or COD until he proves he can pay invoice on time as promised.
Now considering that being a new business owner Jimjohn is tapped due to his entrance costs of government taxes, business formation costs, registration, paperwork, and all the stuff you do when a new carrier is authorized to operate here in the states legally. The Factor kept him from closing his doors before he even got started with his dream……owning a Trucking company. They gave him his needed Cash Flow from his efforts and service he provides to various customer base. Starting with the first one, or coming in 90 days after he started and needs some financial float through a repair, or the carrier that is operating for 7 years and is needing to fund 30 new trucks he purchased. The Factor provides for any needs through immediate cash flow. Allowing the small operators and the big guys alike, a source of immediate liquid capital for a discount of the future entitled funds, while consulting the Factoree (the one who needs to utilize the Factor and their services) on their clients, good or bad payment history, and how to properly allocate for growth and future operational needs.
The great thing is that the Factor can give you way more insight than most if you would just simply ask for their recommendation. They have seen carriers both successful and gone bye-bye. They will guide you towards the Successful, because the longer you are around the more money they can and could profit by helping you with your cash flow and additional services that they may and can provide.
Do you or your business need help with immediate cash flow from your invoices in limbo net30 from delivery?
Could you use immediate cash, and funding for expenses to ease the ownership burden of operating a Carrier or other type of business?
Do you wish to have only a portion monthly factored? or All of your invoices until a later date?
Do you want to Succeed?
Do you want help determining customer creditworthiness?
Do you want immediate cash to operate business, so you can get through the first few years in operation?
Fill out the form below with the necessary information, and a representative will contact you as soon as possible.