Selecting a factoring service is a daunting, but necessary task for freight brokers who need financing options.
Not all factoring companies are created equal. Brokers need to know the right questions to ask when evaluating freight factoring services. And they need to understand the implications to ensure a beneficial partnership.
Factors such as contract terms, fees, funding options, credit checks, and customer service are necessary to dig into before committing to a service.Understanding these questions can help freight brokers make informed decisions and avoid any unpleasant surprises or hidden costs down the road. It also helps ensure a healthy, long-term relationship with the factoring company.
Questions to Ask Factoring Companies in 2024
As we navigate through 2024, the freight brokering industry faces unprecedented challenges and opportunities. The rapidly evolving market conditions and the increasing importance of financial stability make it essential for freight brokers to scrutinize their financial partners more closely than ever.
The recent bankruptcy liquidation of a Texas-based factoring company, reported by FreightWaves, serves as a potent reminder of the risks involved and the critical need for due diligence.
This incident highlights not just the immediate impact on affected clients but also casts a long shadow over the perceptions of solvency within the factoring industry. In a year that promises growth amidst volatility, understanding the financial health of your factoring partners is paramount to ensuring operational continuity and seizing emerging opportunities.
The landscape of 2024 demands a proactive approach to evaluating the solvency of factoring companies. Here are vital questions that freight brokers should consider:
1. Where does the company's capital originate?
Understanding the sources of a company's capital can shed light on its stability and reliability. A strong foundation of equity and secure debt indicates a resilient capital structure capable of supporting your needs.
2. What is the monthly factoring volume?
The monthly volume of factored invoices reflects the company's market presence and trustworthiness. A substantial and consistent volume suggests a healthy client base and operational robustness.
3. Is there a cap on purchase amounts?
Caps on purchase amounts can indicate the financial strength and flexibility of the factoring company. It's crucial to partner with a company that can accommodate your growth and factoring requirements without restrictive caps.
4. What concentration limits are in place?
Concentration limits reveal the company's risk management approach. While lower limits suggest a cautious strategy, offering stability, higher limits may provide more flexibility but at a potentially greater risk.
General Questions to Ask Factoring Company’s (With Denim’s Answers)
Outside solvency questions, you will want to ask your factoring company about their platform, processes and contract to get a better understanding of the potential partnership. Here are a few questions.
1. Do you have a webapp/user portal where I can view and manage my payments, or do I have to call in and talk to an account rep every time?
Yes! Your Denim portal is available on any browser using your laptop, pc, or phone - 24/7, 365.
2. What are the 3 key benefits I will get from your service?
- Time - Automations built specifically to simplify a freight broker’s day-to-day.
- Transparency - Full visibility to your financial transactions, and clear communication for your customers and carriers when collecting invoices and making payments.
- Ease of Use - An essential piece of a modern freight broker tech stack, designed from the ground up with the freight broker in mind.
3. Are you a recourse or non-recourse factoring company? What if a shipper fails to pay or files for bankruptcy?
We are a recourse-based company, and will handle your collections for 120 days. If we fail to collect from your customer (shipper) you will get a chargeback on day 90. The biggest way we protect your company while also protecting ourselves is by offering unlimited free credit checks - which must run credit before we approve a new customer of yours on the platform. In the event a customer of yours is denied, we provide a full transparency report on why. You are still more than welcome to run the load at your own risk, we just won't finance it.
4. What is your factoring rate?
Our factoring rate depends on your volume and can range from 1-3%. To qualify for lower rates, your freight brokerage must meet certain thresholds in volume and or value of monthly factoring with Denim.
5. How long does your 'quick pay' take to issue payment to carriers/truckers?
We offer QuickPay in 1-2 business days. If you upload an invoice on our dashboard by 12:00pm EST the payment is guaranteed the following business day.
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6. Is there a minimum factoring fee per invoice?
No, there is no minimum factoring fee per invoice. You can upload a $200 invoice, a $2,000 invoice, or a $20,000 invoice all through the same system.
7. What is the minimum contract duration with your factoring company?
Our standard agreement is one year.
8. What is the termination notice period? And what is the termination fee?
Denim’s standard agreement begins with a 12-month term and renews annually. A 30-day notice is required to exit, and early termination incurs a fee of 10% of volume to cover administrative and UCC filing costs.
9. What is the ACH transaction fee?
We do not charge any ACH deposit fees. This is a free service for Denim users.
10. What is the daily cut off time for funding?
Invoices submitted by 12:00pm EST are guaranteed a next business day payment. Denim’s Quick Pay is between 1-2 business days.
11. What TMS programs is your company integrated with?
We offer direct integrations with AscendTMS, EZloader, Turvo, EKA, Zuum, Logistically, Port, Quote Factory, and TAI TMS.
If there is a particular TMS you love working with feel free to let us know and we’ll work with you to build the integration.
12. Do you complete a credit check process for shippers? If so, is there a credit check fee?
Yes, we offer unlimited free credit checks for your shippers. No fees ever. This is part of our robust customer validation support and services helping to protect our businesses from fraud.
13. Are there any hidden fees or charges?
No hidden fees and no additional charges for any of the features.
14. Do you provide back-office automation and assistance?
Denim’s broker-first design makes day-to-day operations more efficient. Reduce incoming calls by providing carrier transparency with automated payment notifications.
Our TMS and QuickBooks integrations reduce time spent on tedious back-office activities, freeing up staff to focus more on customer & carrier relationships.
15. Do we get a dedicated account manager?
Yes, every Denim customer is partnered with a dedicated account manager who will walk you through the dashboard, answer any questions, and even help you upload your first invoice to prevent any payment delays.
16. Does Denim (or its subsidiaries) own any trucks? What about a freight brokerage license or motor carrier license?
No. We are dedicated to providing customers with new and innovative technology that advances their business operations through automation and smart decision-making.
17. Do you provide fuel advances for carriers?
No.
18. Do you provide EFS payment services?
No
19. When will I see a copy of your notice of assignment and factoring contract?
These will both be included in a sample contract you will receive from an Account Executive during your registration process.
20. What happens if a carrier's payment is more than what Denim will advance?
We will always make sure your carrier gets paid in full first. Denim cannot factor a job if the contracted carrier price exceeds the total load value, minus the fee based upon your factoring rate.
For example:
You are a Denim client with a factoring rate of 1.3% (you savvy negotiator you). You have a $10,000 load that needs to go from Dallas to Chattanooga. And you find a carrier that agrees to take the load for $9,500.
Denim will advance your carrier the full payment of $9,500 when you factor the load through our Freight Payment System. This leaves you with $500. At a 1.3% factoring rate, the cost to factor this load is $130. Remember - cost to factor the load is calculated based on the total load value.
After Denim receives the collections from your shipper, we take our fee of $130, and pass along the remaining $370 to you. This is your $370 profit, which is released on the subsequent Friday after the collection was made from the shipper.
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