Robert Beard, Owner of Pay4Freight weighs in on long-term contracts and tells the rest of the story – the details that most factoring companies try to obscure from their clients.
Here’s Robert: “A large number of factoring companies today do have term contracts in their factoring agreements.
They generally impose a penalty for leaving—just like your cell phone company does should you want to go to another service provider.
If the service or the plan you’re on all of a sudden doesn’t fit your needs, a termination penalty is collected no matter what.
Most factoring companies require 30 days advance written notice to end the relationship without penalty. That seems fair.
Some companies out there will tell you that they don’t have term contracts since you have 90 days to decide if you like factoring with them and within that period you can leave without penalty, but beware… for on day 91 they lock you in for a year.
In my opinion, that’s a shell game. Better mark your calendar for that type of deal. To make matters worse, there are some factoring companies that require 60 or even 90 days advanced written notice without penalty.
To me, that’s not right at this level of finance. And the penalties can range from a couple of hundred dollars to thousands… Many of those are based on fees they would have earned over the remaining contract period or higher – to ensure they receive it all and even more. The formulas they use aren’t simple to understand or easy to calculate.
The trouble begins as you’ll need their reports to calculate the fee yourself or to double-check their fee to ensure they’re not over charging you. Guess what, you won’t find them on the client website and they just won’t hand them over without a fight. Many factoring companies make it very hard to leave and go to another factoring company—just because they can. Must be an ego thing… because it’s not in your best interest to stay with someone you’re not happy with. Main point being: make sure to ask what the term of the agreement is—most importantly, carefully READ and understand what you’re signing. Failure here could prove very expensive should you ever fall out of love with your factor.
At Pay4Freight 98% of our clients don’t have a term contracts as we believe our service to our carrier determines the length of the partnership. As the company owner, I believe this business has enough conflict already, so why manufacture more conflict by being rigid and inflexible? It’s this kind of client respect we have for our client-partners that causes a high number of them to stay with P4F for many years.
Call us anytime for a free analysis to help show you all the little details in these agreements that could cause you great harm for not fully understanding the legal “un-ease” of today’s factoring contracts.