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Uncertain Future & Rising Costs Increase Need for Freight Bill Factoring: Part 2 of 2

The Fee Clock is Ticking!

Let’s look at a typical recourse freight factoring company program. Most factors will advance the carrier in most cases 90%. You get to use this money for 60, 75, or up to 90 days, and then if not paid-you must buy the invoice back or substitute a new one for the same amount. And of course now, you have a very delinquent invoice to collect. The typical recourse freight factoring company charges you an initial factoring discount ranging from .5% to 4% depending on the anticipated monthly volume of the carrier to the factor. The factoring fee usually covers for the first 30 days the invoice is outstanding from the time you received the money.

Now, it gets interesting. On day 31, most factors charge additional factoring fee or discount for another period(s) of time until collection. It generally will be a lesser fee, but it still adds more fees until the invoice is collected or closed. Some examples are added fees (or discount) every 7, 10, 15 or 30 days (or even daily) until the invoice is finally collected. Again, the fee clock never stops until the invoice is paid by the account debtor or at the date you repurchase it. If you go over the repurchase period, even more fees could be added.

Most freight factoring company contracts state that if you can’t repay the obligation when due you’re in default, and more fees can be assessed. It’s very possible the largest part of the 10% you were not advanced ends up being the factors fees. There are of course other types of fees the trucking factor can change just for the privilege of having access to working capital, but that’s a whole other topic.

Bottom-Line Comparison: Do the Math on Freight Factoring Company Deals!

As we begin to compare the two factoring choices, let’s begin by with the biggest question any trucking company needs to know should any broker or shipper fails to pay the invoice on the load just completed or sometime during the resource prevision of the contract.

To keep the math simple, let’s say the typical net profit is 15% on every load you deliver. You then must divide the net profit percentage into the amount of the load that fails to pay for a financial hardship of the broker or shipper. Example: A broker fails to pay you on a 1,500.load. The calculation to determine of the amount of sales volume needed to replace the incurred loss is: 15% / $1,500 = $10,000. For the owner operator, this amount could constitute one month’s entire revenue.

What does the recourse factor give you in return for selling them this right to payment or invoice? Yes, you get 90% of the amount still due you until the payment is received one way or the other. The quicker the invoice pays, the quicker the reserve is released to you. Freight factoring companies will generally provide you credit approvals or guidance’s, as the eventual collectability really falls on the carrier, routine collection calls on the invoices they purchase, and the postage and mailing of your invoices.

Is the Freight Factoring Company Offering a Fair Deal?

How do you know you’re getting a good deal or not? One thing is certain, that you don’t know the final factoring fees until collection. Most factors collect their freight bills in 36-39 days so the initial factoring fees will not be enough to cover most factored accounts. They control the mailing of the invoice so if they are late in mailing them, guess who pays for their sloppy process with more freight factoring fees? If you are looking in a mirror, you have the right answer!

Since the factoring fees increase daily until the invoice pays, and they are trucking factor is responsible for collections, where’s the motivation to make those scheduled calls to collect them faster? The reality is that you must get involved to help collect the invoices to ensure more prompt payment is made to the factor. Now how much does that (work the factor should be doing) cost you, the trucking company or owner operator? Again, if the invoice is not paid by the time the recourse period ends, it will be up to you to collect the entire amount, as the factor has completed their obligation.

Collection Responsibility May Fall Back on Trucking Company

Adding insult to injury, the freight factoring company’s notice of assignment is still in place, so the money you now are going to the effort to collect will most likely will be sent to the factor, and further delay your receipt of the very funds that you paid a hefty price to get an advance on!
How Non-Recourse Freight Factoring Works

A true non-recourse freight factoring company gives you all the money less their flat rate factoring fees. The non-recourse factor typical fees range between 3% and 6% depending on expected monthly volume. They always provide credit information and approvals, mail your invoices, and collect them. Once they advance you the money, it’s their problem should the broker or shipper whom they’re billing fails to pay for financial reasons. Because their rates are fixed and they paid interest each day to their lender, they’re truly motivated to collect the invoices faster and efficiently to avoid credit losses and continued profitability.

A note of caution: non-recourse factors take financial risk only, not any type of performance risk. If the paperwork, the Bill of Lading doesn’t prove an enforceable obligation to the delivering carrier (factoring client) exists, or the load failed to meet any provision under the carrier/shipper/broker contract and/or rate agreement, then all bets are off.

Inescapable Trucker’s Reality: Non-Recourse Freight Factoring Company is your best choice.

After looking at the realties of recourse versus non-recourse factoring in today’s economic environment, and then after realizing the revenue needed to recover just one unpaid load costs the company regardless of size, how could recourse factoring really benefit any small trucking company during any economic times? Which type factor has the greatest incentive to operate an efficient and effective collection company, in addition to advancing cash to freight carriers? Which factor shares your risk, ultimately becoming a partner with your firm in helping you take on new business, without having to wait for collection of the old? That answer should go a long ways in helping you choose between the competing factoring methods.

About the Author

By: Robert Beard, President of – a national factoring company offering non-recourse factoring programs to the nation’s small carrier market. He can be contacted at: [email protected] or visit