Overcoming a Bad Factoring Experience

Truckers have lots of stories to tell about factoring companies. Some of them are infuriating. Some, even heartbreaking.

Handing over accounts receivables may seem like a relatively simple financial arrangement, but it takes a huge amount of trust. First, the agreement brings a third party into the trucking company’s relationship with its customers. Second, the factoring company is collecting the company’s revenue, and if the agreement about terms is not clear, the fleet may be surprised in a way that affects its income.

When that trust is broken, the fleet owner naturally gets wary about the whole idea of factoring. Still, the industry is prone to periods of cash flow crunch, and a factoring agreement is often the best solution.

One of the biggest surprises that fleet owners discover with factoring companies is that some charge fees for various services or when certain conditions are not met. After signing up with a company that offers what appears to be a particularly good rate, the trucking company soon sees these hidden fees start popping up. A charge for credit checks. A minimum volume fee — charged if your invoices don’t reach a certain dollar amount. A transaction fee processing the payment of your company’s money to … your company.

In a business with notoriously slim margins, those unexpected fees can add up and defeat the purpose of working with a factoring company in the first place. Experience is the best teacher, and when a fleet owner has a bad experience, it’s a catalyst to ask some key questions:

• When are extra fees charged?
• Is there a minimum volume required?
• What is the process for disputes?
• Who is our company’s contact for any questions about fees?

An account manager with the factoring company should be able to answer these questions without any hemming and hawing, or complicated explanations. A fleet owner who has been burned before should detail their concerns and press on with more questions until they feel they are satisfied they have a full picture. Finally, always read any agreement before you sign it, and be sure that it aligns with what you are being told.

Not understanding the agreement signed can lead a company into a contract that ties them to the factor for a specific period of time. The goal of working with a factor is to ease a cash flow problem, and once that is accomplished the fleet owner may see no reason to continue the arrangement. But if they have a year-long contract, even if revenue is solid after six months, they will still be committed to the factor — the very one that may well be charging numerous fees. Or, if they insist on ending the agreement, they will have to pay for the privilege.

These instances, when a fleet owner feels that they are hostage to a freight factor, create understandable distrust about entering into any future factoring agreements. But ruling out factoring completely may be a self-sabotaging reaction. The only way to avoid hidden fees, long-term contracts and even minor misunderstandings is by doing the research, asking the questions and reading the agreement.

A good factoring relationship will give your business a lift when it most needs it. The factoring company that is right for you will be a partner, working to help you achieve your company’s goals.

Are you a Fleet Owner looking to grow your trucking business but concerned about your financing options?

Choosing to work with a factor is a big decision. We can give you the peace of mind knowing that your receivables are backed by an FDIC-insured partner with 28 years in trucking finance.
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