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.

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.

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.

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.

This math is not very accurate. if you were paying 5% per month on the total amount you were going to factor for the entire year, then the math would be good. But follow me on this and see if it makes sense. if the factor rate is 5% or 1.5% or whatever, that is actually the effective APR. If I have 10,000 a month that I factor at say 5%, my factoring costs would be 500 per month. In 1 year I would have factored 120,000 and paid 6,000 in fees. Which is still 5%. This is because it is a 1 time cost for each item I factor. Now if the factor company gave you all 120,000 for the entire year up from and then charged you 5% each month on that balance, then the math you put out there would work. The same is true for things like sales tax. If I purchase the same items every month and pay 8% sales tax every time, I am not paying 8% times 12 or 96% in sales tax. I am just paying 8% sales tax. Just wanted to clear that up. Thanks

You're factoring(borrowing) 10-12,000.00 per month over and over again. The math is right.

BigRich,

I have been factoring with Apex Capital for over a year now. I'm VERY satisfied with them. They have great customer service, a excellent on-line credit check system, and an EFS fuel card with a nice discount. My monthly fuel discount is always more than my factoring fees.

I'm set up on recourse, I check credit before I book a load and I'm good. I have not had any unpaid invoices.

There are always people that say you should not factor. If it works with your business model and you can be profitable, don't be afraid of it.

Shoot me an e-mail if you have any more questions. [email protected]

Good luck

-scott

That's an interesting arrangement. Because Apex has so many cards out there buying fuel they get a discount that thet inturn give to you. The fuel discount is equal to or greater than their factoring fees. Seems like a win/win for you as you get better than cash price buying on your fuel plus you receive free credit checks. Are you obligated to factor all of your receiveables through Apex or can you pick and choose?

It has worked out good for me. Every agreement with them is different, they typically have a monthly minimum. You don't have to factor 100% with them. The fuel card is great!

Thanks,

-scott