Nobody can blame a fleet owner for feeling apprehensive about factoring. Who wouldn’t be cautious about bringing in a third party to handle a key part of your business with your customers? Why wouldn’t you want to be sure that you have a partner who you can trust to have your best interests in mind?
And yes, many a truck company owner has heard tales from colleagues about unscrupulous factoring companies that hurt rather than helped their business.
So what should you do to make sure that doesn’t happen to you?
Look into Factoring Companies Before You Need One
Whether weathering a seasonal downturn or gearing up for growth, there’s a good chance your company will one day find itself with a cash flow problem that needs to be addressed. A sense of panic probably won’t help you make a wise decision. Better to do the research and talk to some companies when business is running well to find out how they work and what they offer.
Choose a Factor that Knows Your Industry
About 80 percent of trucking companies with 250 or less trucks are factoring today, so it’s an attractive market for a factor to target. Team with a company that understands the trucking industry and they will be better positioned to protect your interests and offer valuable advice. How do you find out? Find out who their clients are, and ask trucking-specific questions.
A lot of fleet owners hesitate to ask colleagues about factoring because they worry that word will spread that their business is in trouble. But see above — a large majority of medium-sized fleets have turned to factoring when needed.
Entering an agreement with a factor is the only form of financing your fleet business can take on without adding debt, and people in the industry understand that. Initial conversations may focus on the friend’s bad experiences (those are always the more interesting and fun stories to gab about), but keep asking questions. Make sure a factoring company is financially stable and do your homework on hidden fees.
If you cast the net wide, you should get a fairly good idea of a company’s reputation for customer service, trustworthiness and reliability.
Look for Flexibility
While some companies find that a factor fills a long-term need for back office billing and accounting tasks, most companies use factors to get them through a cash crunch. Be wary about getting tied up in a contract that you can’t get out of. But also ask about the range of programs and services the factor can offer. You may need something different in six months or two years down the road, and they might be able to help you reach that financial goal.
Make Sure You Understand any Agreement that You Sign
Read the agreement. Ask questions. Have a lawyer look it over. Make sure there are no hidden fees. Do what you need to do to thoroughly understand what you are signing before you sign it.
If you’re looking to grow your trucking business, but are hesitant to explore factoring as a financing option, we understand.