Recourse Factoring
Recourse factoring can be one of the most daunting options of the factoring process for carriers who need to factor their invoices. Hidden fees, charge-backs and other tactics employed by some factoring companies over the years under the name of recourse factoring have tarnished factoring’s reputation. But it does not have to be that way. Today, there are more recourse factoring options that are safe, practical and reputable.
First let's look at traditional recourse factoring then compare it to FactorLoads' recourse options
Most factoring companies work exclusively with recourse factoring. Here’s how recourse factoring works: once the carrier submits his or her invoices, the factoring company may likely then advance them a portion of what is owed. Typically, the range would be 80 percent to 90 percent of the money owed. The factoring company holds the balance in a reserve account that cannot be accessed until the carrier’s customer has paid the factoring company in full.
Control Your Own Finances
Additionally, because many factoring companies contractually obligate their customers to factor all of their freight bills through them, the factoring company essentially has control over a significant portion of the carrier’s finances.
As the factoring company receives payment for the outstanding freight bills, a percentage of the money withheld is released back to the carrier. If a factoring company does not get paid for a freight bill, or it is short paid for any reason, they will charge back the full amount and take it from the carrier’s reserve account. Keeping track of what they are doing with your reserve account and chasing the facroting company to fix it is an accounting nightmare. That is known as the process of recourse factoring. And for that reason, it remains important for carriers to make smart business decisions before accepting a load from any customer with a less-than-average history of paying freight bills in a timely manner.
The Details Can Be Tricky
The negotiated contractual fees or percentage charged by recourse factoring companies is commonly based on a variety of things. The recourse factoring company typically establishes a base rate, which may vary from about 1.15 percent to about 3.5 percent at most companies. However, that percentage can increase on a sliding scale with each freight bill, depending upon how long it takes your customer to pay the factoring company. With some factoring companies, the actual recourse factoring cost to you may exceed 10 percent or more for any given freight bill, particularly if your customer is slow to pay. In the end, your actual recourse factoring costs can be substantially higher than the agreed-upon base factoring rate. In the worst case instances, you could be charged back the full amount of the freight bill if your customer does not pay, and still have to pay the factoring fees on top of that.
It is very important that companies fully understand the recourse factoring terms and consequences before signing any contract for recourse factoring.
FactorLoads, in contrast, has developed a fair, no-hidden-fees methodology for recourse factoring.
How does the FactorLoads Recourse Factoring Program Work?
Only FactorLoads has a recourse factoring option that is fair and flexible, with no hidden fees or charges.
With our recourse factoring program, customers with more cash on hand can obtain a lower factoring rate by assuming responsibility for their freight bills. FactorLoads will customize a program that best meets your needs. For instance, if you know your customer typically pays quickly, you can negotiate for a better fee rate by asking for a 45-day chargeback. If your customer is typically slow to pay, you may opt for a higher rate based on a 90-day chargeback.
You can also help lower your rates by fronting us a security account. The greater the security deposit on hand the less risk is involved for FactorLoads and therefore the lower your rates will be. The security deposit is simply set aside as collateral against your invoices. If we terminate our factoring relationship, after the accounts receivables are settled the balance in the security account is returned to the carrier. We work with you to determine the ebb and flow of your accounts receivables and can adjust your security deposit accordingly, allowing you to have maximum cash on hand when you need it most.
Also, with our recourse factoring program, once your security deposit is in hand we pay you l00% of the money due you on the day we receive your invoices. We are happy to customize recourse factoring programs for every carrier we work with, adjusting your rates based on how much security you would like us to hold and the time frames you designate for your customers to pay. Unlike other recourse factoring programs we make deductions from upcoming fundings and you are given an opportunity to resolve any issues before we take any deductions. We don’t force you to deal with a reserve account and all its accounting complexities.
FactorLoads: Building Trust in Factoring
We believe our recourse factoring arrangement creates more trust between your organization and ours because you know all the fees up front and we do not work on sliding scales for payments. Because we charge a flat rate, we are as motivated as you are to have your customer pay the invoices in a timely manner. FactorLoads has no reserve accounts. With other recourse factoring programs, 10% of every invoice goes into the reserve account; chargebacks are from the reserve account. In programs like the recourse factoring options offered by our competitors, when invoices are paid a percentage of the reserve is cleared for payment to you. Please note that this is your money the factoring company is playing with and keeping track of what they do can be an accounting nightmare for you. Your better choice is FactorLoads, where we never use reserves. Instead, we work with a static security deposit, so you never have to worry about what we are doing with your money.