Uncovering The Top 4 Factoring Myths
Finding the right factoring company can be a daunting task. It can be difficult to find exactly what you’re looking for in today’s market with all of the options and inaccurate information out there.
We’re here to help with the understanding that you are trying to grow and succeed as an owner-operator. In this blog, we uncover some of the most common myths about factoring, choosing the right factoring company, and how they can affect your business.
“All Non-Recourse Programs Are Alike” – MYTH
The truth is that not all non-recourse programs are alike.
You could be considering two non-recourse programs that are completely different from each other. One could be a generic non-recourse program with 60-90 day chargebacks and the other could be a true non-recourse program with no chargebacks or fees, like OTR’s program, so it’s hard to compare when no two programs are the same. But it is important for your business that you know how to spot different types of programs.
Usually, the rate is a telling sign of the type of program you are researching. Value and customer service should be considered just as important as rate when searching for a factoring company. When you come across a very low rate, that factoring company usually needs to make up for the low cost with restrictions and terms that can end up costing you more in the long run and take away much of your freedom as a business owner. The difference between these two types of programs becomes clear when the lower the rate means less incentive for the factoring company to handle paperwork correctly, bill on time, and properly collect.
Though you might only work with good brokers who pay in 30-45 days, keep in mind that broker pay terms start when they are invoiced with the correct paperwork. When there is a long wait period in the factoring process, fees, pay delays, and unresolved paperwork can become an issue directly affecting pay terms. As a business owner, you could be put in a difficult situation when the broker can’t get paid without the invoice which causes consistently delayed billing and can damage your reputation with your preferred broker.
When a Factoring Company Tells You There Is “No Contract” – MYTH
When there is money involved, it will always be necessary to sign a contract.
Factoring companies offer tens, sometimes hundreds of thousands of dollars to businesses in hopes to receive the funds back in 30 days and need a contract to do business with you.
If a factoring company advertises a “no contract” program, you should immediately be a red flag, and more digging should be done before doing business with them. While the length of the contract may vary, there is always a contract and a termination process, and you will never be able to use two factoring companies at once or terminate your contract for a buyout at any time for free. The contract will always include the factoring rate, terms of purchase, the liability of the factor, and the extent of their power over your money.
Factoring is a great service that helps carriers of all sizes in every part of the country, and the right company will make sure to communicate the details of your contract and walk you through what you should expect when you factor.
“Brokers don’t like carrier’s who factor” – MYTH
It is more accurate to say that brokers don’t like certain factoring companies.
Brokers need a complete, legible, and timely invoice to get paid by their customers. If a factoring company is slow at billing or always bills incomplete or illegible paperwork, that broker will most likely not want to call you for the next load they need to be covered.
The truth is that factoring companies have the responsibility of working with brokers every day and to build quality relationships with them on behalf of your company. While every factoring company has this responsibility, there are different standards that they hold themselves to. For example, OTR Capital bills brokers the same day that you factor and actively follows up with the broker to make sure it is set for payment.
In this case, OTR Capital has the due diligence to help your company build a better relationship with your brokers, and attempts to avoid any situation where your broker would have to question you for a delayed invoice. Our goal is to collect by the broker’s stated payment terms and we ensure this by calling brokers every 7-10 days for each invoice.
“You Can’t Afford Factoring” – MYTH
Factoring your loads will cost less than paying a full-time employee or not being paid for loads that you run.
For a small percentage, you can have a dedicated team who are checking your invoices, sending bills to your broker, and getting you paid faster than you normally would. Working with a factoring company means that you get your money on time and have the option to use them as your back office, all while being able to write off your factoring fees on your taxes.
For those who are factoring, we understand that carriers are looking to cut costs more than ever. Although you may be re-negotiating a lower rate with your current factor or looking at other companies for a lower rate, it is very important to keep all of the costs and risks associated with lower rates in mind. With the wrong factoring company, poor customer service can delay pay times and keep you on hold for hours, that will end up costing your company more time and money than it needs to.
Although factoring with the right company can mean a slightly higher rate, it can cut down on the time you would have to spend managing paperwork or money you would need to staff a back office and provide your business with more value. You should avoid hidden fees, monthly minimums, poor billing and collecting practices that can cause chargebacks at all costs.
We hope that we cleared up some common misconceptions about factoring and highlighted several important items to look for in a factoring company. As always, we are here to be a resource for you as a trucking company.
Don’t forget, the lower the rate the longer and tighter the contract! Sometimes paying a bit more will result in less over time.
Want other myths busted? What do you look for in a factoring company? Email us at firstname.lastname@example.org and you could see yourself featured in a future post! Questions? Call us at (678) 507-3370.