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All too often we see examples of sleazy behavior by freight factoring companies.
Let’s be clear about what we mean by sleazy. If a factoring company wants to charge high fees, well, it may be aggressive but it’s a free country. But what is simply wrong is being deceptive, misleading, or outright false.
No matter who your factoring company is, you have a right to be treated fairly and with respect. That’s why we compiled a list of common sleazy tricks happening in freight factoring, and how to avoid them.
In this article you’ll learn about these deceptive practices:
- Putting a lien on a carrier’s business too early
- Making false claims about fund availability or transfer speeds
- Teaser rates that increase with little or no notice
- Hard to escape contracts
Plus, learn about our approach at Outgo.
Putting a Lien on a Carrier’s Business Too Early
Most factoring companies put a lien on a carrier’s business as a standard business practice. This ensures that the factoring company has first claim on payments that come in the door from brokers. This is completely legitimate when you are in an official factoring relationship.
However, we have seen examples where a factoring company will place a lien on a carrier’s business without a legitimate reason to do so.
Here’s a common example: A factoring company offers a carrier “free” software to help them run a business. To get access to this tool, the carrier must sign a dense legal agreement. Hidden in that agreement is language that lets the factoring company take first-lien position on the carrier. The factoring company and carrier may not have even agreed on a rate or other factoring terms, and yet the factoring company already has a claim against the business. In other words, they are not yet in a factoring relationship, so there’s no legitimate reason for the factoring company to have first-lien position on the carrier.
Why would a factoring company do this? They may be doing it to make it harder for the carrier to shop around with other factoring options and get the best rate.
How you can protect yourself: Carefully review any legal contract that a factoring company asks you to sign and don't sign any agreements until you are ready to work with that factoring company.
Outgo’s approach: Outgo will put a lien on your business only after you have officially agreed to factor with us, not before. Our approach is to give carriers transparent, clear pricing, and win carrier business with exceptional service, not with contractual tricks.
Making false claims about funds availability or transfer speeds
Factoring companies want to win your business, and we have seen examples of impossible-to-keep promises about fund transfers. A factoring company will promise that they can transfer money via ACH, 24 hours, 7 days a week. No company can do this, it's simply impossible. In the United States, there are no ACH transactions between Friday afternoon at 6:30PM ET and Monday morning at 7:30 AM ET. Unfortunately, some carriers have been left high and dry, expecting an ACH transfer to arrive on a weekend.
How you can protect yourself. Know the basics of ACH timelines and wire timelines, so you can sniff out anyone who is making promises that are impossible to keep.
Outgo’s approach: Even though it is impossible to transfer money between bank accounts at certain times, Outgo combines factoring and banking to allow for instant fund availability as soon as your invoice is approved. To learn more, take a look at our article Faster Funds: The Magic of Combining Banking and Factoring.
Teaser Rates That Increase With Little or No Notice
It is common for factoring companies to give teaser rates, or to offer lower rates for larger carriers. However, some factoring companies will increase these rates dramatically with little or no notice. Additionally, they may tack on monthly minimum thresholds and long-term contracts, which serves to lock in carriers at a higher rate than they initially signed up for.
How you can protect yourself: Ask factoring companies what might cause your rate to increase. Avoid long term contracts unless you can be sure of your rates for the entirety of the contract.
Outgo’s approach: Outgo clearly publishes rates and fees so that you can know exactly how much you’ll pay. Outgo has no long-term contracts.
Hard to escape contracts
We have heard multiple examples of factoring companies describing their contracts as “easy to cancel”, when they are anything but. Many factoring companies have an auto-renewal policy that may even increase your rate, and lock you in for extra years!
Even if the factoring company claims to be easy to cancel, they still have multiple ways to make it difficult, for example by dragging their feet on a buyout, failing to remove their lien, or introducing punitive cancellation fees.
How you can protect yourself: Do your best to avoid long-term contracts, and at a minimum ask the factoring company about the exact steps required to cancel.
Outgo’s approach: Outgo has no long term contracts. You can cancel at any time with fourteen days notice.
Want to work with a clear, transparent factoring company? Get in touch at interest@outgo.co or start an application.