Factoring companies and double brokered loads.

#1
When a client double brokers a load and does not pay the hauling party, what role or responsibility lies with the factoring company have in paying the hauling party?
 

MikeJr

Moderator
Staff member
#2
Touchy subject I think.
I'll start the ball rolling. If a factor's relationship to their customer is to supply cashflow to them in order to operate a trucking business (exclusively), then they should not be supplying cashflow to operate a double brokering business. Now the scrutiny of knowing what your client is doing day to day could become a challenge, especially if they are instructing a transporting carrier to use their pars/paps, and fraudulently submitting to their factor that they 'hauled' the load.
This stuff isn't really my forte and I'll admit I'm still early into my second coffee, so my opinion could be far off. Thankfully there are several members here who are factors and hopefully will speak up.

Happy Friday,
Mike
 

Shakey

Site Supporter
#3
In past when I have thought someone double brokered but I could not prove it I made the factor identify us on the shipment to ensure no one else could come back at us.
 

loaders

Site Supporter
#4
It would be nice if the factoring companies would ensure that their client "actually" hauled the load before advancing them the funds. As I mentioned in a previous post, the onus lies with the originating broker to check all customs docs to be sure the carrier they contracted with is the carrier who hauled the freight. It is extra work and agravation but scam artists are getting smarter and more devious in their attempts to steal your money. Personally, I would like to see factoring companies work more closely with the brokerage industry to help prevent this type of fraud.
 
#5
Ok, I know you guys are just trolling me, so I'll bite. As I said on another post, it's sometimes hard for the factor to know who actually hauled the load because the BoL is often filled out improperly. This should scare the hell out of any carrier, since the BoL is so important in protecting their interests.

To any carrier reading this thread, PLEASE do the following:
  • make sure your BoL has a clear spot for the shipper, consignee and carrier to sign and print their names, so we all know who is who
  • drivers must insist that all parties complete the BoL properly (ie. all must sign in the right place) and that your company name appears clearly as carrier of record
  • if the broker requires their name appear on the BoL, the carrier must somehow prove that it carried the load (in this case, a carrier confirmation showing the broker sold you the load should work)
  • if a second carrier's name appears on the BoL, the factor should ask their client to prove that the second carrier has been paid. If not, factor should take a portion of the advance to pay the second carrier and give any remaining balance to its client
  • if no carrier name appears on the BoL, as is quite common, many factors will often buy the invoice anyways, but they're taking a risk that another carrier shows up and can prove THEY carried to load. In that case, whoever is paying for the load HAS to pay the second carrier, even if they already paid the first carrier. If the factor already bought that invoice from the first carrier, they'll charge it back and will probably terminate the relationship because the failure to disclose existence of a second carrier constitutes fraud.
I am often presented with a BoL with nothing more than a bunch of signatures and no way of know to whom they belong. Most of the comments above are from the carrier's perspective; from the broker's perspective, you're in the same boat as the factor in that you cannot know who actually carried the load unless the paperwork is properly completed.

Hope that helps.
 

economy

Active Member
#6
I am not going to get into further details to add more points posted by KeyFactor (thanks for all your points), expecting that professionals engaged into transportation industry should know what they doing by default.

This topic could raised a lot of arguments. However, to our experience and knowledge of the industry, it all comes to understanding what is the transportation transaction, identify all the parties involved, and their responsibilities.

Upon invoice processing, the only information factor could verify is the invoice itself, contract of carriage and the back up paperwork. In majority of cases, back up paperwork is incorrectly filed by whomever responsible for filing it.

The mechanism that is available available to a factoring company to validate the service is to contact the party subject to the contract of carriage (Broker) to verify the services. There are other parties to the contract of carriage, but no broker wants them to be contacted by anybody else but the broker. Also, there are some other aspects I do not wish to mention to ensure not give out hints to scam artists who might read this forum and use the information for scamming.

If verification process is very limited to a factoring company, does one have a power to impose the liability or pass the responsibility on to factoring company of paying the hauling party the factroring company has no knowledge of?

To familiarize yourself with liability on the subject, we may suggest to google case laws related to the subject to get an understanding how legal minds see and rule it. In the end, in case of the dispute the matters are being either negotiated or escalated into legal proceedings where Judges have to rule!
 

loaders

Site Supporter
#9
If Scamchaser is monitoring this thread, I am sure he could offer a general opinion. If memory serves me, he has represented both sides of these cases before. Also, Keyfactor by no means was I trying to "rattle your cage". My comments were strictly general in nature. I understand and appreciate the service factoring companies offer to a segment of our industry. However, we did have a situation arise just this week that might illustrate how some factors can be somewhat "deaf" to the brokerage industry. Trucking company A had assigned their invoices to factor B a few months ago. As required, we paid each and and every invoice submitted by carrier A to factor B. No problem so far. Unbeknownst to us, carrier A stopped using factor B and no, we did not receive a release letter from factor B. Needless to say, the next invoice we rec'd from carrier A was paid to factor B. Carrier A was quite upset about this but we told him, no release, no pay. Factor B was quite agreeable about returning our funds to us, minus a $10 handling fee. Carrier A has rec'd his money from us, minus the $10.00 handling fee of course. Point is, not only do we as brokers, have to determine who has actually hauled the load, but now also determine which factor the carrier is using at this moment in time. My little rant for a Friday afternoon.
 
#10
If Scamchaser is monitoring this thread, I am sure he could offer a general opinion. If memory serves me, he has represented both sides of these cases before. Also, Keyfactor by no means was I trying to "rattle your cage".
All good, @loaders...I was just kidding.:)

I think you did the right thing in continuing to pay the factor. No release letter means that the factor is probably still owed money even if the carrier terminated their relationship. It could be because the factor funded invoices that remain open (unpaid). There are many ways to fix this situation, including by the carrier paying out all balances due to the factor upon termination. In exchange, the factor can provide carrier with a copy of termination/release letter to send to customers. This obviously presents some challenges for the broker and lots of potential for confusion. Maybe the best advice I can offer is for everyone to communicate well and ensure they're all on the same page.

Loaders, if you received the assignment letter, you are bound by its terms. I think the factor must act in the best interests of its former client and try its best to avoid creating confusion (easier said than done).
 
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SCAM CHASER

Site Supporter
#11
Several points have been raised here, so in no particular order:

[1] I discourage my factoring clients from knowingly purchasing double brokered loads, where there is a nexus to Ontario, and since a portion of the carrier's invoice may be impressed with a "trust" pursuant to the HTA.

[2] That being said, when a shipper pays a factoring company who has already advanced the money to the broker, there is no "trust" created.

[3] Notwithstanding that every factoring company registers their security interest by filing a financing statement under the PPSA Act, an account debtor, oblivious to the GSA, can continue paying the assignor (whoever factored the invoice with the factoring company) until such time as the account debtor receives express notice of assignment in writing. Only if you request verification that the invoice has been assigned is the factoring company required to provide you with any additional backup. They will often provide you with the initial factored invoice a covering "notice of assignment" where the principal of the assignor "authorizes" you to pay all present and future invoices to the factor, until written release is given.

[4] Failure on your part to sign and return the NOA only assists you if you miss paying a future invoice to the factor. If you receive a NOA and ignore it, and pay the assignor directly, and the service of the initial factored invoice is paid to the assignor directly, you will probably be held liable to pay again.

[5] Not withstanding that I came in second, it is interesting to read over JSD Transportation v Sam Transportation et al, which I have attached to this reply. Though I believe the trial judge may have erred, there was no appetite from the client to launch an appeal, so the small claims court decision exists.
 

Attachments

loaders

Site Supporter
#12
Scamchaser's point #1 is further evidence that double brokering is a problem not only for brokers and carriers, but also for factoring companies. The sooner this practise is eradicated, the better off this industry will be....for all parties concerned.
 
#13
Great stuff, @SCAM CHASER...lots of valuable lessons. Numerous references to how JSD could have better protected its interests by insisting on identifying itself as the carrier or record on the BoL. Several criticisms of how the BoL was not properly completed.

I agree with @loaders that double-brokering causes all kinds of problems for all parties, but it's such a widespread practice that I'm not sure it can be eliminated.
 
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economy

Active Member
#14
Factoring and double brokering, these are very sensitive and vast topics I doubt this forum is capable of covering in full. Moreover, throwing some partial information might result into further arguments, misinterpretation, confusion to some readers. On behalf of a factoring company I'd like to appeal to KeyFactor to be very careful in choosing the words and expressing your thoughts, they might be wrongly interpreted. I would discourage you to continue expressing your knowledge publicly, and would rather encourage members/readers of this forum to address PM to KeyFactor or Economy or any other factoring operator on this forum with your questions or concerns. I'll be more than happy to provide our opinion on the issue. I choose word OPINION because there is no manual to refer to that focuses and outlines factoring operations. Contrary to transportation industry where almost everything is prescribed and regulated.

Also, Factoring is not limited to transportation industry. There are many other industries Factoring companies serve. The operation mechanisms and principles are somewhat similar.

In some other thread of this forum MikeJr said "factoring it's partly about rates and partly about the breadth of services that they can offer and the fine details of the agreement. What else can they do for you and what else you need from them kinda thing". We totally agree with such statement. Besides A/P purchasing, all Factors do that, it is about other variety of expertise and services Factor has to offer.

if you signed the assignment letter, you are obviously bound by its terms.
There are no requirements to sign the Notification of Assignment (NOA), it is just a matter of whether the debtor was notified of Assignment.

All experienced transportation industry professionals, members of this forum, most likely familiar of factoring companies possession of a great leverage over all parties to the contract of carriage - transportation transaction. Factoring company is the very first party to a transaction who is out of money, the other words compensated their client/carrier for rendered services less discount (Factoring Fee). Client-Cargo Owner who requested the truck to move the goods is yet to pay for the services, broker is yet to pay for the services, but Factoring company already have. Now, here is the question: WHAT IS THERE TO SUPPORT FACTORING EXISTENCE?

Statutory provisions, common laws, knowledge, experience and expertise of the industry are the elements that allow Factoring companies to structure the successful operations.

Notification of Assignment; if one received, READ IT, understand it, it contains crucial instructions. Instructions debtor has to follow. Instructions that were given to the debtor by the creditor. Now it is turn for debtor to pay, settle the indebtedness. It is not debtors' choice whether to accept Assignment (NOA) or not. Debtor simply is given instructions of whom to pay. If the debtor ignores the Assignment, he does so at his peril.

Uncertain or unfamiliar with the subject? Do not ignore NOA. Research the subject, take advise from someone with experience, seek legal advise, consult, consult, consult.

Our apologies for the long message, these topics would take a book to explore.
 
#15
I won't address most of economy's points other than to thank him for clarifying the NOA issue and agreeing that my comments can be misinterpreted (I've edited some of my posts here). I'll re-phrase a few important points so you know where I stand:
  • Nothing in this forum should be construed as legal advice...I would hate to have to make that disclaimer on each post and hope that no one here would base a legal argument on anonymous comments posted in a transport industry blog.
  • I stand by my comments that clear communication is paramount in any business relationship - especially in a factoring relationship - and will always advocate properly preparation of all documentation - especially the BoL.
  • While some carriers support double-brokering in certain circumstances, I despise the practice and am sure many have been burned by it. DON'T DO IT...YOU'RE PUTTING YOURSELF AND OTHERS AT FINANCIAL RISK.
 

loaders

Site Supporter
#16
Just a few general observations regarding factoring and please, they are not meant to demean that industry or their clients.
I am sure I am not alone in thinking, that some carriers who require the services of a factoring company are perhaps on somewhat unstable, financial ground. Certainly not the case in all instances....but????
If factoring does provide a benefit (as I am sure it does in some cases), why do we see some carriers switching their factors as often as I change my socks? It adds an extra layer of administration to our accounts payable department checking to ensure we have the correct NOA and/or letter of release, and most importantly, sending the funds to the right party.
I know that we, and most other freight brokers, are extremely careful about making sure we are paying the actual carrier. Checking B/Ls, PARS and other customs documents so that the potential for having to pay for a freight movement twice is minimized. It would be a great help to all of us, if factors took the same precautions. Having been bitten once by paying a carrier, and then receiving notice that the invoice we paid had been assigned, keeps the experience fresh in my mind.
So again, not a knock against factors or the people that use them, just thoughts and suggestions to help all of us and maybe foster greater cooperation between factors, the trucking industry and especially freight brokers.
 

lowmiler88

Site Supporter
#17
I'm just going to throw out the fact that all of our Carrier Confirmations state that if this load is double brokered we will pay the carrier who actually did the work. So personally I don't care if it was factored or not we will pay the carrier that did the work so factoring companies do have a responsibility to protect themselves.
 
#18
I'll say it again...checking documents is irrelevant if the documents are improperly completed.

@loaders, I can't speak for other factors, but if I see paperwork that does not match (ie. info on BoL does not match carrier confirmation sheet), our policy prevents us from buying the associated invoice.
Today I saw a BoL with the broker name showing as carrier of record. If I buy this invoice, I am supporting this practice, which I view as misrepresentation (FRAUDULENT, to be blunt).
 
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loaders

Site Supporter
#19
You are absolutely correct keyfactor. An improperly completed B/L causes countless problems. I am still amazed to hear from some carriers that "the shipper didn't give us a B/L"! If that happens, the driver should grab his pad of blank B/Ls and start copying down the pertinent information and get a signature. There is no excuse for a driver to leave a shipper without a B/L, either the shippers, or his own. A Commercial Invoice, or packing slip is not a Bill of Lading.
 

Michael Ludwig

Well-Known Member
#20
You are absolutely correct keyfactor. An improperly completed B/L causes countless problems. I am still amazed to hear from some carriers that "the shipper didn't give us a B/L"! If that happens, the driver should grab his pad of blank B/Ls and start copying down the pertinent information and get a signature. There is no excuse for a driver to leave a shipper without a B/L, either the shippers, or his own. A Commercial Invoice, or packing slip is not a Bill of Lading.
What a lot of people, on every side of the fence, fail to grasp is that the bill of lading is much, much more than a manifest of the goods on board. It is a CONTRACT of CARRIAGE. Without that contract, no party to the transaction has a single legal leg to stand should the transaction go sideways.
No B/L issued, the receiver cannot claim damages.
No B/L issued, the carrier does not have to be paid.
No B/L issued, the receiver may not have to pay the shipper.
Even if it goes perfectly according to plan, parties to the transaction are exposed.

A side note ...
I personally have successfully used, on more than one occasion, the "No B/L issued, the receiver cannot claim damages" part although I fully expected the payer of the freight charges to avail themselves of the "No B/L issued, the carrier does not have to be paid" part ... which they did. I still lucked out since the load values were way more than the transportation charges, yet the transportation charges were less than my deductible.

As for paying factoring companies, what's the big deal? Instead of writing it to the carrier you hired, you simply write the cheque out to someone else. If it makes you feel better write the cheque out to XYZ Transport c/o ABC Factoring.
It really only becomes a problem if you're getting bent out of shape over double brokered loads. I suspect my view on the subject is somewhat different than others. I personally don't see an issue with it. WTF do I care who had it before me as long as I am getting paid what I want to do the job? The key to dealing with "double-brokered" loads is working with reputable firms. If you're getting your loads from Sketchy Transportation Inc, currently of no fixed address, you should probably expect problems. Caveat Emptor.

That's my soap box rant for the day ...
Happy New Year everyone :)
Yogi Out :)
 

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