“As a nonrecourse factoring company, we’re going to be more selective about the brokers we’re willing to take a risk on,” says D&S Factors President Diana Clover. The benefits for the carrier come in not having to worry about a struggling broker not paying, or, worse, going out of business, putting you on the hook for the money.
Nonrecourse factors have no reserve accounts. “We fund the entire load immediately,” taking a flat fee of 5 percent that doesn’t vary by the account, Clover says. “With us it’s kind of what you see is what you get.”
Some companies, like Factor Loads, offer both nonrecourse and recourse programs.
Angel Teaming two-truck fleet owner-operator Tom Rethelford, of Kentland, Ind., factors his mostly direct loads for a shipper of aluminum coils, hauled in dry vans, with D&S Factors. He and haulers like him prefer the simplicity of the flat nonrecourse rate to the tiered rates and withholding used by recourse factors.
When Rethelford switched to a recourse factor for a brief time, they were “a couple percentage points better initially, but if the broker didn’t pay within so many days, it’d get up to the price that D&S charges,” Rethelford says.
Factors as partners
Omaha, Neb.-based Nydin Transport owner-operator Terry Angleton sends the majority of his brokered loads through recourse factor Outsource Financial Services at a flat 3 percent rate. Before that, he frequently took quick pay advances from a broker for a flat $30 each. “Sometime it was an advance on $1,000, sometimes $1,250,” says Angleton. “But sometimes the load might have paid only $700, and he was still charging me $30.”
Factoring solved Angleton’s cash flow problems and saved him a little on advances. But as with others using factoring services, he found added value in collections assistance, online accounting services and credit information gathering.
Mainstream factoring companies view their customer relationships as a partnership, though memories of past loan-shark practices remain with many carriers, says Foil. “When I go to an ATA [American Trucking Associations] conference, you say you’re a factor and they look at you cross-eyed.”
Those old tactics have faded away in recent years. Competition has reduced rates and broadened services factors offer. Both recourse and nonrecourse factors often offer broker credit information at no charge to their customers, via phone and/or online portals.
Some also serve an advisory function, too. Says Clover, “When [carriers] call in to see whether a load’s factorable with D&S or not, some will say, ‘What information do you have on this company?’ ” If the broker will pay quickly, Clover adds, it makes sense for the carrier to skip the factor. Giving customers that freedom is a hallmark of a good factoring service, she says.
RMP Capital approaches the subject similarly, says Wulf. “We kind of take the guesswork out of loads hauled for some of these companies.” A customer worried about an unfamiliar broker will often call to ask whether RMP’s done business with them. “If we have some experience” with that broker, he says, “we can tell them, or at the least pull a credit report on them.”
In accounting, too, a recourse factor can be a useful partner in tracking business performance via online invoice inventories and accessible payment histories. In the collections department, good factors often help apply payment pressure on a broker or, less frequently, a shipper. Says Foil, “On day 30, we call. About 40 to 45 days we’ll get a collection call out there. If we need to file on the bond for a broker, we’ll do that.”
When a factor is used, in effect, as an outsourcing of your collections effort, it can free up time for you to focus on gaining new business. It can also help a one-truck independent get established with a stable shipper, says Aaron Rapaport of Outsource Financial Services. That’s what happened with Angleton, who snagged his primary direct contract after working with Outsource on brokered loads from that shipper.