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Freight invoice example for Finance

hello and welcome to another educational web seminar brought to you by truck writers in partnership with Concept Financial Group factoring Freight invoices 101 presented by Sean Sullivan and Chris Johnson now a few things about our technology before we begin the webinar today your lines have been muted for the duration of the webinar you can use the arrows to minimize the menu and enter questions into the chat panel to your right but do not click the black X or you will exit the web seminar now a bit about our speakers Sean Sullivan is CEO of truck riders he's been a risk manager and insurance agent for over 30 years he was elected board member of the Minnesota Trucking Association and received their president's award in 2013 Chris Johnson is president of concept Financial Group he's an expert in transportation finance and an active member of several Transportation associations his company is also an active member of both the American and international factoring associations without further Ado I give you Sullivan and Chris Johnson okay thank you for the introduction Andrew uh Chris welcome welcome hello everybody thank you for sharing your time with us today all right uh in respect for everyone's time let's get rolling uh Chris what exactly is factoring well Sean in the most simple way I can Define it factoring is selling invoices for cash so like the ATM on your M on on your screen is visualize that machine where you simply put in the invoice and outs spits the cash okay that's it as simple as that and that will conclude our webinar today thank you for joining us everybody okay uh Chris wait a minute sit down sit back down okay sorry sorry okay there's got to be more to it than that well okay and contrary to what you think Sean no I did not invent factoring but the history of it goes back to it's one of the world's most oldest methods of financing dating back to the early days of civilization back when trade was going between the colonies and the United States the timber tobacco cotton it was a way to facilitate that those transactions taking place then from there in the 70s and 80s with banking regulations and high rates factoring also then became more prevalent and then from the 90s on it's become mainstream many large Banks large financial institutions have factoring arms besides Trucking industry which I believe most of our listeners are a part of uh it can be found in most Industries uh any business with a reliable client and an invoice could Factor okay thank you and just for the record Chris I never ever thought you invented factoring okay okay so uh factoring companies are also known as uh factors so how many factors are there well in the us there's hundreds of factoring companies Across the Nation from the large Bank affiliation to the one person shop who's got just a pool of money and he or she um does small ticket factoring it is a worldwide uh factoring the international factoring Association is uh a worldwide organization with members all across the world okay you mentioned earlier uh the word bank I have a question is factoring regulated like banks are well no and yes uh I mean no in that there currently is not any government regulation like in banking specifically to factors um yes in that in the mo for the most part factors do a great job regulating themselves there is a group The IFA which I just mentioned the international factoring Association that most factors are members of and that organization has rules of ethics that we all follow okay thank you uh let's talk about the different types of companies uh that might Factor isn't factoring only for companies who are about to close their doors well that is the old perception as you can see there and versus the new perception um those old negative connotations I can Source them at two places cost and customer perception um when I started in this industry 177 years ago the old school perception maybe was somewhat that you were financially weak or way or out of you know on your way out of business uh but nowadays it's just a normal means for you to uh Finance your operation you know as banking regulations get more strict it will re you know it makes it harder for for businesses to get loans from Banks to qualify um for banks so in that regard factoring has even become more mainstream with that and then so secondly the costs the perception was that factoring cost you a a lot of money and uh over the last gez 15 years uh the the costs have definitely come down and it's because of competition there there just is more competition and more competition will bring cost down and then secondly technology there improved technology which just make things more efficient again bringing cost Downs uh factoring was aund or no a $215 billion doll industry now and oh maybe not even 10 years ago it was half that so it it's just a mainstream way of of financing your cash flow okay so as I understand it factoring is actually the sale of an invoice then it's not a loan that's correct okay um understanding that factoring is widely accepted in the marketplace uh why would I choose to factor well okay as a business owner you you need cash for working capital so I see four places the business owner could look to their own personal funds um family members or an outside investor a bank or a factor uh well it it's not going to take long for you to use up all your personal funds and then secondly do you want to have a family member an outside investor coming in and taking control of your business so that makes you look to a factor Auto Bank as a next place to turn to for cash flow okay thanks uh in regards to working capital what's the difference between a bank and a factor well okay a let's a let's go with a bank line of credit so a bank line of credit is just like it sounds a bank line of credit and it it's a great way for you to fund your working capital and it's the if you're a business owner it's the first phone call or visit you should make is to your local Banker uh if you're a business that's been around for a long time good credit no concentrations I mean those those are what banks are looking for uh it's a great inexpensive source of funding for you however on the flip side Banks would have more requirements more regulations that make it hard for small or new operations to qualify for a bank line um banks are extremely slow in making decisions which is difficult for a growing company um a factor would have less restrictive agreements um there probably no covenants no restriction on owner distributions no financial statements needed all those things would be needed by a bank um I can kind of sum it up and this way which I've learned is factor and I say this respectfully because I was a banker for 10 years but uh factors are typically business people who look at growth and future growth uh to make credit decisions while Banks tend to Base Credit approvals on the past you know historical information that may not be re relative to your future growth like I always remember this Mark one of my old bosses told me this once mark mark twne quote he said a banker is a fellow who lends you his umbrella when the sun is shining but wants it back the minute it starts to rain okay that's a that's a great saying um let's talk more about the reasons that you uh a business may want to factor its invoices okay so well we'll just go in the order here uh it speeds up cash flow factoring provides you fast and reliable cash flow uh you you deliver the load today you know it's factorable today uh you have payroll due on Friday well you can plan forward because you know what your incoming money is going to be for the for the week um otherwise you're just you know you build out to the debtors and you're just waiting for them to pay is the check going to come today is it going to be next week is it going to be the week after um factoring also um many clients um benefit from the credit checks and collection efforts as a as your partner a factor would be you know you're thinking of hauling a load from a company You' never heard you you know call your factor and say if you ever heard of them what do you show credit for them you know the worst thing for you to is a haul a load and never get paid you'd have better off just sitting home watch and Magnum PI that day or something like that so factoring provides in a way a complete package so it gives you the working capital financing it gives you credit risk protection um bookkeeping and you know the factor is doing the calls the factor is not a collection agency but they are making the phone calls in a professional and courteous way um 80% of new businesses fail from lack of cash flow not lack of sales so you got to have cash okay you used the example when we started of the ATM machine um could you talk a little bit more about the factoring process and how it actually works okay so the process would be um well first before we get to this the uh the the there there's an approval process so the approval process is pretty simple it's you know it can be on a on a Factor's website where you just put in a few key information about your yourself and maybe some of your clients so once you get through that then there's you discuss the terms sign the documents with the factor now all that stuff could happen in a day 24 48 hours so it it is a quick process so once all that's set now you're set now you can just move forward you won't have to do any of those documents again what should we really look for in a factoring company well uh we okay let's just go by the list I suppose okay flexibility so you're looking for flexibility you want a partner that's flexible your your business changes something happens tomorrow that you didn't expect well you need to be able to call them and explain to them and work through it and figure it out together so that's what's you want a partner that's going to be flexible and understand those things um minimum volumes uh what what a minimum voluming requirement is and it is common I do see it but uh say you're you know 10un account and you're promising that the factor is going to purchase $100,000 of invoices each month and which would generate an x amount of fee for the factor well then the factor is going to have in our contract that minimum volume amount which so then like next month say it goes down you're still paying the factor the fee um so I would watch for any minimum volume requirements uh initiation fees those would are just like they sound I mean you you for a factor to set you up their real cost of their own is minimal it it really is if someone's charging you a $100 Initiation fee or something that's seems reasonable but there really would be no reason for any initi fee um termination fee again it's along the same lines as I think it's in your best interest to have no termination fees in in your factoring Arrangement a recourse versus non-recourse okay the the difference between recourse and non-recourse is recourse means that at a certain point in time so say for example 90 days at 90 days this invoice would be charged back to you so you the factor purchased the invoice today it's one day old 90 days from now the factor still he's done their he or she has done their professional collections um but it hasn't gotten paid so at 90 days they would look back to you and say well we need to charge us back to you so on your next batch of invoices you set you sent I would be deducting that um non-paid uh invoice non-recourse means like so once the factor purchases it whether it gets paid or not uh the factor holds it they don't charge it back to you now to continue on with that because it is a big uh subject uh the the non recourse Factor will charge you more and the non-recourse factor typically will have you just need to read your contract because there are many exclusions that in a sense you know provide them the opportunity to essentially charge it back or turn it back to you um so if I prefer recourse versus non-recourse just from your perspective I think it's better and I mean we've I've been doing this for 17 years and to think of how many invoices have ever gone over 90 days for the volume we purchase it it's just not it's not worth the extra payment you're paying the factor for the fee on the on the non-recourse um in Integrity reputation do a simple Google search are they a member of IFA uh are they better business bureau the the the internet has lots of information um to to see um customer service uh everyone says they do this and it's important because I if if if they're not giving you good customer service as their client um what do how do you think their customer service is going to be with your client that they're calling and uh they have you know contact with your clients and you know if they're giving you great customer service then you would expect that it would go on to the service that they're giving your clients also okay um I appreciate that chis um what are some things we should watch out for okay good uh watch out for you know hidden fees in your cont in the proposed contract that you're looking for um you know the long-term contracts most importantly just just read and if you don't understand something ask questions if you still don't then ask another question um it's it it's like I said Sean it's simple that ATM machine that I described in the beginning it's simple you needed to know a lot more so that's why I've exped explain more than that but it really is simple um a factor that's trying to make it more complicated is probably not a good partner for you okay Chris well thanks again I really appreciate that I'd like to go uh now back to you Andrew for uh questions that uh our viewers might have excellent thank you very much Sean and Chris that was a very informative webinar and we have a few questions that have come in so let's dive right into it our first question is if I decide to start factoring how easy is it to stop well my first response would be it depends on your own cash flow and because you still need your cash flow to flow um so you know you need to make sure you have that plan in place on how you are going to cash flow it from there maybe you maybe the bank's giving you a line of credit or or now you can fund yourself um one of the best examples that I've seen how this works is uh a client has 25 customers that they factor and they decide over time you know what let's keep five of them in house so okay they keep five in house then maybe they decide to keep another five in-house and then 10 inhouse and then eventually it's there's five left that they factor and then it's they're cash flowing and everything is going great and then they just say you know let's uh let's just pull all these in help and stop factoring uh but something again to to discuss with a factor prior to signing up with them and and that's it very good next question we have is I am concerned that the factor would tick off my client we spend a lot of time getting these customers and are concerned with anything that could damage that relationship it's a great question it is yeah um you know professional factors understand the importance of your customer um and they're great in having positive relationships positive relations with your client it's certainly something you need to consider uh because factors will have substantial contact with your clients um but many debtors already pay third parties Walmart for example has a entire department that deals solely with Factor so uh in all my years I I cannot recall seeing this as an issue very good the next question we have is what happens if the invoice never gets paid well I again that goes back to the recourse and non-recourse dis discussion we had um if if if you're with a if you're with a non-recourse factor and there's no um problems that they've identified then it it's their problem not your problem if you're with a recourse Factor then it would get charged back to you on your next next um batch of invoices you were submitting with the factor so say you had a $1,000 invoice that wasn't getting paid um the factor would be charging it back to you now let me add that that you're not going to just find out at 90 days that it's not being collected upon you will be involved in the excuse me in the process all along so it will be no surprise to you that it is going 90 days and the factor will have a good reason to charge it back because they don't want to charge it back they want to get paid so they are doing their best professional courteous collections to get that paid excellent another question is this a long-term deal what if I have cash crunch now that I know is only temporary well no it is it isn't necessarily a long-term deal unless you've signed a long-term contract um but otherwise no it it it can be again it's it's part of the negotiation and process and due diligence on your part as you're looking for a factor and and doing your due diligence on them um you you you don't want a long-term deal and you you do have a cash crunch uh the here's a good time to talk about this the so say you have a debtor that is your is your main debtor and they have a high volume with you but you you you want to factor them like this time a year but then other times a year you don't need to factor them and that can work but the only problem with that is the deor that once you sign up the deor with the factor now the debtor is going to pay the factor so there's been a process that goes along between you and the factor and your client to get that all changed over and it's just wise to be sensitive to your customer because they don't want you then you know three months later saying nope no that those invoices now need to come to me not to the factor they just you know in my experience the debtors just don't like the changes they you know when once you set them up they like it set up and if you're going to take them back then just take them back very good another question that's come in what will my customers think if I use an invoice vectoring well I I think back to my main comment earlier about just that it's become a mainstream means of Finance I mean Walmart like I said as a division um specifically to deal with factoring companies you know some factors will Market that uh this in a way signals that your company is actually more financially stable and there's some you know I can understand that where that would be helpful you know your your clients want to make sure that okay they hired you to haul a load they want to make sure that you're financially sound enough to once you pick up the load to be able to deliver the to the load um so I guess my overall would just be it's something to consider for you it's also a reason to make sure you select a good partner and um I guess that's it excellent well that's all we have time for today if anyone who's attending in the audience has more questions or like more information from Sean or Chris the contact information has been provided on the screen here it will be available on the truck riters website truck riders.com and uh reach out to either of these F gentlemen for more questions thank you very much for attending this web seminar is now ending have a nice day