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Dispatch_This
Joined: 10 Jan 2007
Posts: 141
Location: Barstow, CA.
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| Posted: Mon Apr 07, 2008 3:04 pm Post subject: |
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| Someone on this forum had a real bad experience with a non-recourse factor. Think it was D&S. If I remember correctly, D&S took the reserve when a broker didn't pay. The trucker complained, they stated that non-recourse only covers an invoice(s) when the broker files for babkruptcy. If he just closes his doors and disappears, your SOL. |
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Dispatch_This
Joined: 10 Jan 2007
Posts: 141
Location: Barstow, CA.
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| Posted: Mon Apr 07, 2008 3:16 pm Post subject: |
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Joymax_Trans2
Senior Trucker
Joined: 17 Mar 2006
Posts: 121
Posted: Thu Oct 18, 2007 9:27 am Post subject:
ncnewbie,
There was no contract. So the answer to Q1 & Q2 is NO.
I also received a real good understanding of what is meant by non-recourse. There is non-recourse if there is a credit issue with the broker. Let's say the broker filed for bankruptcy - then there is non-recourse to the Carrier. If that is not the case and they are still doing business but just not paying the factoring company then the factoring company can seek payment from the Carrier.
I was under the impression that is was best not to sign a contract but in reality if you are going to deal with a factoring company, seek one using a contract because everything is spelled out and there are no grey areas. With no contract - you have no idea what's going on with the factoring company, legal or unlegal. |
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merrick4
Joined: 08 Nov 2006
Posts: 880
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| Posted: Mon Apr 07, 2008 3:48 pm Post subject: |
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Well Dispatch_This has this right. What a fallacy this non-recourse this is. I'll tell you how I just found out too.
First off the company I am an agent for is a recourse factor. However just a moment ago I logged in to see if a bill I factored with D&S was paid. It said it was short paid $50. I called up to see what happened next and sure enough they said it would come out of my next settlement. I asked what non-recourse was and she said what Dispatch_This wrote.
Basically she said that if it's any type of paperwork issue then we will be charged for it but only companies going out of business would be a non-recourse.
As for the UCC lien, I would say that is right too as I saw something to that effect on my business credit report. In the end I guess this non-recourse things is highly misunderstood. 5% is quite a bit for a semi-recourse factor.
By the way, I called the company that short paid me and they apologized and will be sending out the money.
Glad to know also Bigmon about the iced coffee but I heard it was still only in the 60's there; they need to bring up the temperature before I go back there. :) |
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Useless
Joined: 08 Oct 2005
Posts: 3177
Location: Canyon Lake, Tx.
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| Posted: Tue Apr 08, 2008 3:24 am Post subject: |
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BigDiesel wrote: If you need to factor look at your business bank first. If they do this, the rates will be cheaper. Many factoring companies are nothing more than payday loan sharks.
Well Stated, BD!!
Back when I was starting out in the medical equipment manufacturing business, we used factoring agents, but that was for the purpose of getting us over cash flow humps as we were growing and having to pay the next 90 days worth of operating expenses with the previous 90 days worth of revenue.
As a temporary remedy, it worked, although it meant leaving some profits on the table. I don't know enough about the economics of the trucking industry to be able to say whether or not it would be a viable long term tool for operating.
I know that you know quite a bit about making sense out of trucking dollars.
Perhaps you might have more information to share?? |
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Dispatch_This
Joined: 10 Jan 2007
Posts: 141
Location: Barstow, CA.
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| Posted: Tue Apr 08, 2008 9:18 am Post subject: |
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| Factoring all your frieght bills through non-recourse could easily cost you $15-20,000 a year right off your bottom line. 5% on each invoice works out to an APR of around 72%. That's insane. |
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Joymax_Trans2
Joined: 17 Mar 2006
Posts: 126
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| Posted: Tue Apr 08, 2008 5:44 pm Post subject: |
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| When we do factor, we use Sunbelt Finance which a recourse factoring company. Our fee is 1% every 10 days. Our shippers and brokers are paying on avg of 18 days. We receive rebate checks the first week of the month. Just got one today for $400.00. At 45 days we would still only pay 6% but so far it's been under 2%. I also pay close attention to what brokers & shippers I do business with. The key to working recourse is to work with as many different brokers as possible therefore your money is not tied one company. Sunbelt recommends doing < 5% business with each broker or shipper. |
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merrick4
Joined: 08 Nov 2006
Posts: 880
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| Posted: Tue Apr 08, 2008 6:17 pm Post subject: |
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Dispatch_This wrote: Factoring all your frieght bills through non-recourse could easily cost you $15-20,000 a year right off your bottom line. 5% on each invoice works out to an APR of around 72%. That's insane.
Dispatch_This, could you help me figure this out. (Or no_worries I know he's good with this too)
For instance if the factor fee is 2.5% what would be the APR and how do you figure this out?
Also so you are paying like 8% on a piece of equipment, would it be better to factor and get the cash and then just pay cash for the equipment? |
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Dispatch_This
Joined: 10 Jan 2007
Posts: 141
Location: Barstow, CA.
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| Posted: Tue Apr 08, 2008 7:41 pm Post subject: |
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merrick4 wrote: Dispatch_This wrote: Factoring all your frieght bills through non-recourse could easily cost you $15-20,000 a year right off your bottom line. 5% on each invoice works out to an APR of around 72%. That's insane.
Dispatch_This, could you help me figure this out. (Or no_worries I know he's good with this too)
For instance if the factor fee is 2.5% what would be the APR and how do you figure this out?
Also so you are paying like 8% on a piece of equipment, would it be better to factor and get the cash and then just pay cash for the equipment?
Assuming the fee is 2.5% on "30 days out" (normal terms) all you have to is multiply 2.5 x 12 months.the APR is 30% in this case.
Non-recourse at 5% would be a 60% APR based on 30 days out.
If you want to work up a business plan that estimates how much it would cost you to factor, it gets a little more complicated.
The formula would look like this:
Factoring rate x (365/ "days out" agreement) x what your average receivables balance would be if you DIDN'T factor.
It's simpler than it sounds.
A typical one truck independent might have $25,000 out on average, if he didn't factor.
Using your terms 2.5% x 12= 30% x 25,000= $7500 a year in factoring costs. Non-recourse at 5% would be $15,000 a year. Not a good deal either way!
Hope this helps. |
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merrick4
Joined: 08 Nov 2006
Posts: 880
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| Posted: Tue Apr 08, 2008 9:21 pm Post subject: |
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Thanks Dispatch_This. We found a place that does it for supposedly 1.3% and I was thinking how would they do that but 1.3% is 15.6% APR and if you have a boat load of cash, a 15.6% return is not a bad investment. No wonder so many places offer this service.
Of course over 30 days brings down the APR if I understand this right. The 4 bills I have factored and they have been paid with D&S were done in 38,46, 20 and 34 days.
So based on 46 days at 2.5% if I understand this right now that would be roughly 20%. (365/46 = 7.93 * 2.5 = 19.83).
Seems to me that if you need money to run things, better to get a line of credit at 8% or so and then use that.
Thanks again Dispatch_This; I appreciate it. |
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Dispatch_This
Joined: 10 Jan 2007
Posts: 141
Location: Barstow, CA.
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| Posted: Tue Apr 08, 2008 9:44 pm Post subject: |
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| Provided that D&S doesn't bump you up to a higher rate if the broker takes more than 30 days to pay- You nailed it. |
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