The Worst Factoring Company Horror Stories - Know The Signs!
Updated: Sep 14, 2020
So many times, we hear truck drivers and trucking company owners telling us stories about how they had been misled on the terms of their contract with their current freight factoring company. There were hidden terms or fees, monthly minimums that weren't stated upfront, and a misleading length of contracts.
Freight factoring is a great asset to many truck drivers, providing you with consistent cash flow to run a successful trucking company. It's unfortunate that some factoring companies take advantage of this. This is why we are here to educate you on what to look out for to avoid becoming a part of these horror stories!
All stories below are real (the names have been changed to hide identities).
Horror Story 1:
Company ABC Trucking signed on with XYZ Factor for a 1 year, recourse agreement. The money that hit their bank account after running a load didn't match the amount of the load's worth. In the contract, the reserve amount is not listed. Therefore, XYZ Factor varies how much they give the carrier as it is up to their discretion. ABC Trucking can only terminate the contract between 120 and 90 days out from the contract renewal, locking them into an agreement that is taking money from them.
What to look out for:
If there is a reserve, make sure the reserve amount is stated in your contract. Otherwise, the amount is up to the factor's discretion and could change every fund.
Understand the termination terms of your contract before you sign up.
Horror Story 2:
ADZ Trucking signed a recourse with no reserve, one year contract with GGG Factors, but it's not as simple as that. Hidden terms stated the rate can be adjusted each month depending on how much volume ADZ Trucking brought in the previous month. It was also hidden that GGG Factors has the right to change the reserve at any time. ADZ Trucking signed on with no reserve, but GGG Factors can increase the reserve to 5% if they want. There was also no early termination option for ADZ Trucking if they decided they want to leave and if ADZ Trucking never factors a load, but signs the contract, they must factor $2,500 in admin costs, but it still doesn't terminate the contract. GGG Factors had only paid ADZ Trucking $7k of the $100k they sent them in the 2 weeks they've been signed on. They only have one login, and their client reps send them google links to search instead of helping solve the issues hands on.
What to look for:
The clause that states if the factor can change the reserve or the rate at their discretion, at any time, during your contract period.
An early termination clause.
A minimum funding volume requirement.
Horror Story 3:
Company Truckerz signed a contract with Factor4U that is unclear if it is recourse or non-recourse in its terms. They thought they were just signing a 90 day factoring contract, so they could leave easily after that time. However, the contract terms state you have to notify the factor that you want to cancel a minimum of 90 days out. So, Truckerz was really stuck in the contract for a minimum of 180 days (unless they paid the termination fee).
What to look for:
Whether the contract states if it is a recourse or non-recourse agreement.
The length of a contract. Check the fine print to make sure if you're signing a 90-day contract, that it is only 90 days, and you can leave after the time period, hassle free.
The termination fees clause to understand the price of terminating a contract early.
Horror Story 4:
All About Trucks signed a "non-recourse" contract with Summer Factoring that has no term limit. The contract has many misleading clauses including: a "non-recourse factoring fee percent" at 2.5%, a "non-recourse collection fee percent" at 0.5%, and a "reserve percentage" at 4%, making the rates add up quickly. The 4% reserve also makes the contract a recourse agreement, and not the non-recourse one that All About Trucks thought they were signing up for. All About Trucks has 10 days to send in all original paperwork or has to pay Summer Factoring $10 per day its late after that. If All About Trucks sends the rate sheets in in the wrong order, Summer Factoring charges an extra $5 per invoice. If All About Trucks requested a wire and sends in paperwork in more than one email, they are charged an extra $25. All About Trucks can only request their reserve be released twice a month and Summer Factoring can increase the reserve rate at their discretion without permission or approval from All About Trucks.
What to look for:
HIDDEN FEES - this contract is full of hidden fees that add up to big sums.
HIDDEN TERMS - the hidden fees add up if you make a mistake that is stated in the hidden terms.
The type of agreement - make sure you fully understand if the contract you sign is recourse or non-recourse.