Points to Consider While Shopping for a Transportation Factor

Not all factoring companies are created equal. Here is some useful factoring information. If you are considering factoring, please be sure you carefully review the following points BEFORE you sign any letter of commitment, proposal, or Security Agreement with a factor.

Communication

Factors are unlike banks in that the service and communication which takes place between the factor and their clients is extensive. Therefore, it is vital that you do business with a factor who responds to your requests promptly and professionally. When you call your factor, you don't need the voice mail menu, you need to speak to someone who communicates well and understands you need prompt action.

UCC-1 Filings/Proposals

Some factors will present what appears to be a "non-binding" proposal to your company to get the ball rolling, so to speak. Do not sign a proposal which contains language authorizing the factor to record a UCC-1 Financing Statement on you and your company. This effectively means that you have just legally allowed the factor to take a secured position on all the assets of your business (equivalent to recording a deed of trust on a piece of property). In the event you change your mind, and do not wish to pursue a business relationship with this particular factor, you will be faced with the unpleasant task of getting the lien released. Often times, the factor will charge you a fee to release the UCC filing.

Proposal/Security Agreement

Do not accept a Proposal as being the underlying document to your Security Agreement. Proposals typically present the bare minimum facts and will not emphasis the more unpleasant parts of the actual Security Agreement such as guaranteed minimum fees, actual contract terms, audit fees, line renewal fees, etc. The factor is betting you will simply sign their Security Agreement and assume that all the pertinent contract details were outlined in your proposal.

Fees

Rarely do factoring proposals state all the fees associated with the contract. Review your Security Agreement carefully. If there are references to "additional/miscellaneous fees", insist on getting all the details. If they give you feedback that is unclear or confusing, move on. Stay away from things you don't understand or are not plainly stated.

Here are a few examples of some fees, which may be hidden in your contract.

Master Agreement

Do not sign any agreement which states you agree to "the terms and conditions" posted on an internet site if you cannot access the referenced internet site, view, and print out a written copy of said "terms and conditions" for you to carefully review. Recently we have seen many trucking companies fall into this trap. Certainly you have heard the expression, "Moving the goal post". Without a written, physical copy of an executed Security Agreement signed by all parties, how can you be sure the rules of the game don't change?

Length of Contract

Be sure to read the termination clause in your contract, do not take the word of the factor's salesperson. They may use the term "90 day minimum". But if you read the actual contract terms you have a 30 day window from the date you sign your contract to terminate, otherwise you are locked in for up to another year and a half. Many contracts provide a very small window in which to terminate. In the event your funding becomes less reliable, or there is a breakdown in your relationship with the factor, can you go somewhere else without paying unreasonable termination fees? If a factor has confidence in the level of service they provide, there is no need to lock customers in to long term contracts with a limited 30 day window each year in which to terminate.

Advance Rate

Transportation companies need all the money they can get up front. If you are not offered a minimum of a 90% advance, shop around.

Line of Credit

What is your maximum line of credit and will it be sufficient to sustain your company's growth? Many factors charge fees every time they have to review your business for a line of credit increase.

Float Days

Some factors will deposit your customers' checks and wait to credit your account for up to five business days. This can effectively increase your "quoted rate" significantly.

Service and Experience

Make inquiries about the factor's reputation. What is the depth of the knowledge and experience in the transportation industry? Will there be personalized attention to your account whenever you need it, or do you always have to leave a message in someone's voice mail?

Fee Statements

Request sample copies of fee statements from your factor. Do you understand these reports? You don't make money trying to analyze your month end fee statements from your factor. These reports should be easy to read and uncomplicated.

Why Do Transportation Companies Use a Factor?

Points to consider while shopping for a Transportation Factor

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