Questions to ask Freight Factoring Companies before you sign up with them

I work for a Freight Factoring Company, and I always tell Carriers that they need to be aware of how a Factoring Company operates before signing up with one. Understanding how they do business is essential because that Freight Factoring Company is going to be in charge of your cash flow (A.K.A. the income and revenue being deposited into your bank account). The Freight Factoring Company that you choose to sign up with needs to be viewed as your business partner. You 100% need to know how they operate to make sure their operation is going to fit and work harmoniously with your Trucking Business. So, to help you, I’ve made a list of essential questions Carriers need to ask Freight Factors before they sign up with them. These are the things you need to weigh and measure when comparing Factoring Companies against one another.

Paul's List of Questions to ask Freight Factoring Companies:

1.) What tools does that Freight Factoring Company use for Credit Checks to verify approved Brokers whose loads are Factorable?

A.) Before you pick up the phone to call a Broker about a load you see posted on DAT, you first check the Broker's Credit Score. So, what tools and resources are available that the Freight Factoring Company is providing to you to verify good Brokers to work with?

B.) Why is this important? Let's say the Factoring Company you're with has an unsophisticated credit check tool for you to check Brokers’ credit with. Let’s say it's a slow and complicated tool that’s not convenient to use to check credit. Well, if it’s slow you're going to miss out on good loads that are available, and you’re not going to get to them in a timely manner because the tool that Freight Factor gave you isn’t efficient enough for your operation, meaning you'll miss out on loads and money. 

C.) Moreover, let's say you don't check the Broker's Credit Score and you call the Broker and chat for 2-to-5 minutes and negotiate the price for the load. You decide to accept the load and agree to pick up the freight within 30 minutes. You hang up the phone and then you check the Brokers' Credit Score and then you realize the Broker isn't approved to work with because they have been caught double brokering loads (which is a big no-no). Now you've wasted time and need to call back the Broker to cancel the load, plus explain why you’re doing so. Furthermore, you’re now under the gun trying to make up for the lost time. So you’re now calling on other posted loads to find a job/load, but other carriers might have beaten you to the punch and got the "approved" Broker's loads already because you're Freight Factor has a crappy tool and theirs doesn’t. 

2.) Ask them about their Customer Service

A.) As a Carrier, are you getting one point of contact that's your dedicated Account Manager to help you day-to-day? Or, do you have to do over $40,000 monthly in invoice volume to get a dedicated Account Manager? (Most Carriers average $10,000 monthly). Freight Factors know the numbers so ask them about an Account Manager. Your first year in business is likely when you'll need the most help because you're learning, since everything is new, so you'll want an Account Manager to help provide guidance.

B.) Ask them if there is someone who will always be on call to answer the phone even after hours if you need help? Or would you get a Call Center based outside the US? (A lot of Factors are starting to outsource).

3.) Can they do same-day deposits? And when is their paperwork cut-off for same-day deposits?

A.) This is important when it comes to needing fuel advances or when you need to pay a driver on Friday at the end of a long week. Some Freight Factoring Companies don’t do same-day deposits which is nuts, but it’s true. I used to work for a Freight Factor and our paperwork cut-off time for same-day deposits was 3:30 PM EST. Meaning, if you sent over a picture of your Rate Confirmation, Bill of Lading (BOL), and Proof of Delivery (POD) to our office before 3:30 PM, we would deposit the money into your account the same day. 

B.) There are other Freight Factors out there where their paperwork cut-off time is 12 noon to get a deposit the same day. So yes, there are clear differences you need to know about before signing up with a Factor because this will directly affect your cash flow. Some Freight Factors only do deposits every two days and others only do deposits once a week. That’s a long time to wait on your money. Signing up with a Freight Factor that can deposit your money on the same day is very important, so ask the Factor if they can do same-day deposits before signing up, plus ask them what their paperwork cut-off time is. You’ll want to know. 

4.) Where are they located? Are they in your same Time Zone/State?

This question relates a lot to the previous question. If everyone had the ability to take a 10-step process and turn it into 5 steps we would all do it. So, if you can find a good Freight Factoring Company in your same time zone, moreover the same state, this will help with keeping up with the cut-off times for same-day deposits. Plus, this will help with your day-to-day communication knowing that the Freight Factor is operating within your operating hours. Ask this question because it’s important. It’s a small detail, but knowing the small details can make a big impact in the long run.

5.) Do they have an Online Portal? (How do you upload your paperwork?)

Having an online portal is not an end-all-be-all, so don’t consider this a deal-breaker. Ask the Freight Factor if they have an online portal where they will give you a username and password to log in and upload your pictures of the Rate Confirmations, Bill of Lading’s (BOLs), and Proof of Delivery’s (PODs) all by yourself to submit loads for processing and payment. Or, can the you just send the paperwork over to the Freight Factor via email, and it’s good to go for processing? It might that be both options are available, but you need to ask to make sure. They probably will have an online portal, and if it was me I would ask to see a tutorial on how the portal works before I signup.

6.) Do they also offer a discount with Fuel Card savings? (Make sure the Fuel Card isn’t a Bait and Switch Trick… 99% of them are)

A.) This is a great question to ask, but it should absolutely NOT be the overall factor to make you want to use one Freight Factor over another. Fuel cards are a dime a dozen. Plus, some Fuel Card Companies will 100% bait and switch you to sign up with them for their Fuel Card and also sign up for their crappy Factoring Program without telling you. LOVES, RTS, Truckstop, and WEX do this. It’s misrepresentation but they do it anyway.

B.) Getting the Fuel Card is something you should do second on your list after you sign up with a Freight Factor. Again, if you do this out of order you’re shooting yourself in the foot; I’ve seen Carriers go out of business because they chose to go with the wrong Freight Factor.

C.) Again, Fuel Cards are a dime a dozen. I used to work with over 500 carriers and the feedback I received was that Trans Connect Services (TCS) is the best Fuel Card for savings at the pump. From my experience, TCS is the best for Owner Operates (1 truck operation) but they might also have a great program for Carriers with a fleet of 3+ Trucks, I honestly don’t know, you’ll have to call them and ask. But, TCS is also a Freight Factor, so only signup with their Fuel Card after you have 100% signed up with the Freight Factor you want. After, TCS I would recommend WEX. WEX is pretty good and you can get multiple Fuel Cards if you have multiple drivers. Plus, WEX has security features with their cards so your drivers can’t purchase anything that you wouldn’t want them to. Then in the 3rd position, I would recommend getting an American Express Cash Back Card. I personally think this will be all that you need. Again, this is a great question to ask a Freight Factor, but it should absolutely NOT be the decider on whether use one Freight Factor over another. Do NOT let it be your deciding factor. 

7.) Factoring Rates…

A.) 9 times out of 10 you get what you paid for. Have you ever bought a cheap pair of shoes or a cheap set of tires? I bet you regretted buying them… I know I do. I did it thinking this is going to save me money, and it doesn’t in the long run. So, when it comes to Freight Factoring and Rates, I’ve seen them range from 1% to 8%. If you get the cheapest you will get cheap service and you’ll be pulling your hair out wondering where the heck your money is because you can’t get anyone on the phone to give you a straight answer about your loads and deposits. So don’t get the cheapest one out there. As you can tell, there are a lot of factors that come into play.

B.) If they offer and stair-step Factoring Program, hang up the phone. It’s not going to be a program to help you, it will be a program to rip you off. Let me give you an example of a stair-step Factoring Program… The Factor will say “If you do more than $30,000 monthly for 3 months in a row we will drop your Rate by .5 percent then if you do more than $60,000 we will drop your Rate by .5 percent again.” It’s a trick in my opinion. Find a factoring company that has a fixed rate and signup with them, and if you’re doing that much business they will want to keep you with them and they will drop their rate lower if you ask them politely. That’s how you get a good rate… Not playing around with an archaic and over-complicated stair-step Factoring Program that changes with your performance. If you’re processing a lot of loads they will lower the rate if you are professional and politely ask.

C.) You need to ask the Freight Factoring Company “Are they using the U.S. Prime Rate?” What is the U.S. Prime Rate? The Prime Rate is an interest rate that banks can use as a source to set rates for different types of loans and lines of credit and some Freight Factors use this as their Factoring Rate for Carriers. But here’s the trick: the U.S. Prime Rate is measured against stock market indexes so it’s not a fixed rate. It will go up and down. So, as a Carrier, your cost could go up and down, and if you’ve been paying attention to inflation the U.S. Prime Rate is only going to be going up. So, if it was me, I wouldn’t want to use a Factor that’s using the U.S. Prime Rate. Currently, the US Prime Rate is 7.75% and will be going up more soon. 

8.) Do they require original paperwork for Deposits?

Some Freight Factors are cool with you taking pictures of the Rate Confirmation, the Bill of Lading (BOL), and Proof of Delivery (POD) and emailing the pictures over to them and this being used as proof that you’ve completed the job and deserve your pay. However, there are some Freight Factors that require you to snail mail them the original paperwork for them to review and process. Snail mail could take 5 to 7 days to get to the Freight Factors office for processing. Moreover, things can get lost in the mail. So, I would recommend not working with a Freight Factor that requires original copies of paperwork.

9.) Are they doing a Reserve? (Paying you 90% on the day of delivery, and then paying the remaining 10% 30 days later? Yes, some Factors do this.)

Let’s say for example you have a rate with a Factoring Company at 3.25% and you DON’T have a “Reserve Contract”, you have a Non-Reserve Contract, and you have a load valued at $1,000. You send that over to your Freight Factor and they will pay you $967.50 the same day and it’s done and dusted. You got paid and you’re moving on to the next job and don’t ever need to think about it again. 

Now let’s say a different Freight Factor has a “Reserve Contract”. Let’s look at the numbers with a “Reserve” of 90% and the same rate 3.25%. Well 90% of $967.50 equals $870.75… This is what will be deposited into your bank account the day you deliver the load. The remaining 10% ($96.75) will be held (A.K.A. a Reserve) and this will be deposited into your bank account 30 days later. 

That is what a “Reserve” is in the Freight Game for Factoring. It can add up if you’re processing $15,000 dollars worth of loads monthly. That’s about $1,500 you’re not getting paid ASAP when you deliver your loads. But hey, like Mamma always said, “If it isn’t in your pocket, it isn’t your money”. Personally, I would recommend not using a Freight Factor that uses a reserve.

Conclusion:

Overall, I hope you’ve learned a thing or two from reading this article. I believe these are 9 outstanding questions you need to ask a Freight Factor before you sign up with them.