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| Posted Fri, Apr 29 2011 12:11 AM CST | ||
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CORY LAMBERT C.S. LAMBERT, L.L.C. DUBUQUE, IA 563-599-5279 Posts: 3 |
Factoring is definitely a unique financing tool; but, is it always worth it. I suppose that depends on the terms of the factoring company. Some companies want a six month to a one year agreement. And, they sometimes charge inactivity fees; meaning, if your’ not busy you have to pay up. Fees can add up quickly with factors, so it’s important to analyze the contract you sign with them very carefully. Also, many factors have teaser rates, also known as bait and switch. They may advertise rates as low as 0.69% to 1.59%. Some clients may actually get these rates, but a factor will never make money charging rates this low to owner operators. The average rate is 2% - 5% per month for owner operators. Some factors charge per day and some every seven to ten days. The rate really depends on the credit worthiness of the company you are hauling for, not necessarily your credit rating. Although, many factors will not do business with you if you own back taxes or have liens against you. Also, if you have declared bankruptcy in the past that will probably go against you. Factoring is for owner operators who want to expand, or who need to pay bills and salaries in a timely manner. It is also sometimes used to have some cash in the bank for emergency situations. Basically, it’s for owner operators who don’t feel comfortable waiting 30 plus days to get paid. It is not a good long term solution if you are paying a boat load of fees. It can absolutely be beneficial if done right with the right factoring company. I have been getting many questions about factoring from owner operators because of current fuel prices. Remember, fuel prices are going to cut into your bottom line-and factoring may help because it takes 24-48 hours to get paid. Factoring can also be a double edged sword because you will have to pay a fee to the factor. So, be careful if you are thinking about factoring to help cash flow at this time. If owner operators are interested I will explain how the actual math works on my next post. I will beak everything down so it is understandable, because factor math can get complicated. It can be simple if explained right. Cory Lambert [email protected] 563-599-5279 |
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| Posted Sat, Apr 30 2011 11:54 PM CST | ||
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KEVIN COWPERTHWAIT HORSE PRAIRIE TRANS DILLON , MT 435-632-8994 Posts: 6 |
What is factoring? Is it like someone financing your recievables? | REPLY REPLY WITH QUOTE |
| Posted Mon, May 02 2011 03:58 PM CST | ||
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CORY LAMBERT C.S. LAMBERT, L.L.C. DUBUQUE, IA 563-599-5279 Posts: 3 |
That is exactly what it is Kevin. If you create and invoice (receivable) after work has been completed a factor will buy it from you. Typically they will give you 75% to 80% of the receivables value up front. The factor then instructs your customer to pay the factor for the full amount of the invoice. When the factor receives the money for the invoice they will send you a rebate check for the rest of the amount minus 2% to 3%. That is the fee you pay. |
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