What is Factoring?

May 22, 2018

 

While we have a page that talks about it a bit here, some of us do better with more information and examples, so we decided to turn it into a blog post. We hope this helps answer any questions you may have. If not, let us know!

 

Let's say your company transports good for five different companies: StuffMart (SM), PaperCo (PC), SoapySoap (SS), GasTankStuff (GTS), and ThatOneCompany (UGH). Each company signs a contract promising to pay you. SM and SS are small companies, so you give them only 30 days to pay the amount you invoice them for. PaperCo and GTS get 60 days, and UGH gets 90 days. All told, you have $50,000 a month in outstanding invoices. PC is pretty good about paying immediately, but the others will run out their time until they pay, and UGH won't pay unless you really get on their case. Not only are you out the money that you're owed now, but you also have to spend time and energy (which is money) constantly re-invoicing, calling, and emailing them. They'll eventually pay, but it's a pain to try to collect on it.

 

Now, a lot of these contracts do not have a clause in it that dictates what happens if one of those five companies goes out of business. Sadly, a lot of companies like yours is simply out that money. Sometimes the contract will insist they pay, but if they are bankrupt, odds are they can't pay, and once they file bankruptcy, their debts could be tossed out.

 

So what is factoring? Factoring is when a company, like a bank, buys those invoices from you. You get your money now, and they worry about collecting. You credit doesn't matter, because they're not collecting from you. They spend time going after the companies. We only partner with those known for great customer service, so they won't hassle your customers to pay before the invoices are due. They even offer something called nonrecourse factoring, which means if one of those companies goes out of business, the finance company takes the hit, not you. You already got your money.

 

There is a downside: the finance company takes a small percentage of however much you factor. Part of we do it negotiate to get you the lowest percentage possible. We know you're busy, and you don't want to have to call company after company trying to create a bidding war, or spend time researching each company to ensure they have great customer service. We do this for you, and we never charge you for our services.

 

Bonus! Some companies offer competitive incentives, such as fuel advances or cash back if your invoices are paid early or are all paid. Because we don't do long-term contracts, if you want to factor more or add in a truck, you can ask for a lower rate. As a general rule, the more you factor, the lower the rate!

 

That's all there is to it! If you don't want to wait to be paid the money you worked hard for and earned, factoring may be for you. You're welcome to reach out to us and we will shop for you and let you know your options. There's no obligation, so if you change your mind or were just curious to see if we're telling the truth, you don't have to sign anything! (Spoiler alert: we tell the truth. Seriously, we don't charge you for anything we do for you. We exist to help you!)

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