As an added service, RMP Capital offers a fuel card that comes with rebates. Because it’s a debit card, Wulf says, it can facilitate cash flow between a factor and customers.
“They send a batch of invoices for $10,000, and we can transfer a portion of that – say, $2,500 – to the fuel account and just draw down over time.”
That sort of partnership approach is a hallmark of a reputable factor. “Our philosophy is the healthier the carriers are, the more healthy we’ll be,” Clover says.
Getting better rates
Factoring became attractive for owner-operator Terry Angleton when he negotiated a 3 percent rate, below the 4 percent quick pay rate he was charged by one of his high-volume brokers. He recently negotiated an even lower rate by allowing the factor to hold more than its standard 7 percent in reserve.
Finding a good factor
One criteria for evaluating a factor is membership in the International Factoring Association. Its members must adhere to a code of ethics, which is spelled out at the association’s website, factoring.org. “We have had to take disciplinary action against IFA members who did not follow our code of ethics,” says IFA Executive Director Bert Goldberg. “Membership was revoked.”
A search tool at the IFA site allows you to match the size of your business to an appropriate factor.
RMP Capital’s Chad Wulf suggests that potential customers get references on any factor. He and other factors also recommend checking on the following considerations:
TRANSACTIONAL FEES. Contract termination, start-up and transactional fees can effectively pad a low-percentage teaser rate.
EXCLUSIVE CONTRACTS. Some contracts require the carrier to assign all loads to the factoring company. Most good factoring services give the carrier a lot of leeway in the arrangement, though many recourse factors will require carriers to factor all loads on a particular account.
RESERVE MANAGEMENT. Keep an eye on how a recourse factor handles the reserve. For instance, some companies have been accused of holding funding of an invoice payment beyond the 30th day to get extra fees.
The requirements vary for starting business with a factor, but you’ll need:
• Proof of active U.S. DOT authority and current MC number
• Proof of active insurance
• A list of brokers/shippers you’d like to factor. This will help in customizing the service to your needs.
Using reserve as maintenance account
When Showers Transport owner-operator Bill Showers, based in Knox, Pa., was having cash flow problems in 2005, he signed with Outsource Financial Services. This not only enabled him to get fast payment on his invoiced bills, but it also yielded unexpected advantages in long-term financial management.