Using a factor is a lot like an arranged marriage

Using a factor is a lot like an arranged marriage–easy to get into, but getting out of the agreement can be hard. Here are some tips and thoughts for truckers and small motor carriers to consider.

What truckers and small motor carriers need to keep in mind is that factoring is a business, just like the transportation industry they’re in – and the factors are in business to make money, just like them. But there are still major differences between the industries, even in the way paperwork is handled and the results of traffic jams. Not all factoring companies have someone on their staff who knows anything about trucking. If the factor you’re talking to doesn’t have a person you can deal with who spent a lot of time as a driver, or at the desk of a trucking company, don’t sign with that factor. The factoring people won’t understand when you can’t file paperwork they need on a regular, clockwork-like basis if you’re out on the road with bad weather, construction, traffic snarls and the everyday manic life of a trucker. In turn, you must know that probably the only way you’re going to be able to get help on the weekends or after regular office hours is if your factor has a 24/7 online presence.

Some other pointers:
One of the first questions you ought to ask any factor is whether they’re a member of the International Factoring Association. The IFA has been around since 1998, and while it’s not a legislative body, it has expelled members that the association didn’t feel were conducting their business forthrightly and dealing honestly with their clients. You could also ask if they’re a member of the Commercial Finance Association, also founded in 1998, and similar in its membership and responsible business dealings strictures.

You always hear that some factors won’t take your trucking company as a client if you don’t turn a certain amount of receivables annually. The best way to find that out is to call several factors and ask what their annual sales requirements are. While you’ve got them on the phone, also ask about finance charges and service charges which your trucking company might be assessed. Working with a factor may cost more in fees than the same services a bank might provide, but if you’re a new company starting out, you might not find a bank willing to loan you money. In this instance, select a factor carefully and adjust your business plan accordingly, figuring the added fees as part of your overhead, or the cost of doing business.

Check around. Rates differ. Some factors won’t talk to your company unless your annual sales are $250,000 and up, while others who’ve been in the business for over a hundred years will provide funding for businesses with half that amount. Do your homework. There are factors who don’t insist you place every receivable with them for factoring, but this is one provision you must watch for in the contract you sign.

Be sure you understand every sentence and clause in your contract. Have an attorney go over the contract with you before you sign. This point can’t be emphasized enough, because pretending you understand something in a written contract when you don’t can be the undoing of your trucking company.

Check the contract you’re offered very carefully not only for those minimum sales requirements as mentioned above, but the length of the contract, whether the factor is ‘recourse’ or ‘non-recourse,’ and your options if you want to terminate the contract.

Don’t wait until your trucking company needs money within a day or two to find a factor. This is probably where more small motor carriers come to grief, because when the need for cash flow is pressing, a business owner can make assumptions or mistakes which could prove costly in the long run. If you, as the motor carrier owner, don’t take the time to compare several factors, their contracts, and what they offer, then you are very apt to make a serious mistake.

Consider the research you need to do before signing with any factor a kind of prenuptial agreement. And remind yourself before you say, “I do,” to the factor’s contract, you should understand everything in it. That prevents a bitterly-fought ‘divorce’ between your two companies. Champagne, anyone?