Factoring companies and double brokered loads.

[Jim L]

The legality of factoring companies advancing payment to brokers or carriers who broker freight has never been tested in Ontario courts. Using part of Michael Ludwig's example:
Broker A has a load worth $2,000, and sells it to Carrier B for $1,500. Carrier A assigns the invoice to ABC Factoring for $2000; however, $1500 of it is subject to the trust account provisions of the HTA, so only $500 legally could be sold to ABC Factoring. Could ABC be held liable for "knowingly" purchasing funds impressed with a trust?

But what would happen if:
Broker A has a load for $2,000 and sells it to Carrier B for $1,500 who in turn sells it to Carrier C for $2,500 and delivers it properly. The trust amount for Carrier B who factored it should be $2,500. Would the factor then be responsible for the $2,500 even if the invoice amount was $2,000 ??

 

[Michael Ludwig]

Geez Jim !!! ... LOL
Interesting concept though ...
One would have to suspect such an arrangement would have been created with criminal intent in mind. More specifically, fraud. I'm not certain if regulation would still apply where criminal enterprise is involved.
However, having said that, The Factor would not be aware of criminal enterprise at the moment of execution, so I expect in the grand scheme of things you would be correct that the trust amount would be $2500. I would think The Factor though is only on the hook for the invoice amount which would be in line with their contract with Carrier B.

 

[economy]

I doubt that ever the Trust account provisions of the HTA be applicable to the factoring companies. I assume one could try to build the argument, but in the essence, IF BROKER/PARTY WAS PAID, only the portion belonging to the actual carrier must be placed by the broker/party on the Trust Account.

@broker; You have to ask yourself a question: What is the role of the factoring company to this transaction? The role is upon invoice submission to fund it (less small commission), and collect later. The factor is out of money right away and seeks to recover their funds at a later date with a surplus small percentage of the commission.

The other question that you might ask: Should the factor validate the invoice? Before you ask it, come up with a validating method!

@broker; In the end, you lost the control of your own transaction! I will repeat what already been said here: IT HAPPENS TO THE BEST OF US.

 

[Michael Ludwig]

I doubt that ever the Trust account provisions of the HTA be applicable to the factoring companies. I assume one could try to build the argument, but in the essence, IF BROKER/PARTY WAS PAID, only the portion belonging to the actual carrier must be placed by the broker/party on the Trust Account.

The Factor is playing the role of a financial lender, and is not carrying on the business of a transportation entity. What you are saying makes perfect sense.

I would even go so far as to say the idea of the trust account is now defunct. Since there is no licensing body for brokerage, the effort for the crown to make a case would be nothing short of monumental.

As I mentioned earlier, load brokerage in Canada is the wild f'ing west, and back then the only law was the law of the gun. Pretty sad to see we've gone back 150 to 200 years in time. Maybe collection methods will have to go back that far to keep up !!!!!

 

[loaders]

I don’t think it would be the Crown mounting a case involving a delinquent freight broker, it would be the parties who are owed money by the broker. So for example, the broker who owes money to a factor, goes bust. The factor could make the case that the money they are owed should have been placed into the brokers trust account for distribution to the carriers who performed the transport and not co-mingled with the brokers other operating funds. There is considerable case law where exactly that has happened. Provided of course that the brokers customer had in fact paid the broker. If they hadn’t been paid, then the factor is barking up the wrong tree and should adjust his attention elsewhere….good luck…the shipper. Once it has been established that the broker should have placed those funds into his trust account but did not, there are examples where the corporate officers have been held personally responsible for the outstanding debts of the corporation. Often referred to as ”pulling back the corporate veil”. All that said, if there is no money left in the business, chances are that the corporate officers were smart (devious) enough to squirrel away their share of the money, far from prying eyes and hands….Cayman Islands perhaps? Or, as is most often the case, just spent it.

 

[Michael Ludwig]

I don’t think it would be the Crown mounting a case involving a delinquent freight broker

My bad ... I was thinking in reference to a fraud case. Just didn't say it that way.
A clear case of brains faster than fingers ... LOL

 

[Michael Ludwig]

Once it has been established that the broker should have placed those funds into his trust account but did not, there are examples where the corporate officers have been held personally responsible for the outstanding debts of the corporation.

Any chance you have some names or case numbers off the top of your head. I would be super interested in reading those transcripts.

 

[loaders]

It would be best to reach out to Scam Chaser for that information. Or Google the topic to death with no guarantee of success! There have been cases here in Canada, each one unique in their own particular circumstances, but it is my understanding that there has been some legal precedent set in this regard.

 

[Michael Ludwig]

It would be best to reach out to Scam Chaser for that information. Or Google the topic to death with no guarantee of success! There have been cases here in Canada, each one unique in their own particular circumstances, but it is my understanding that there has been some legal precedent set in this regard.

I'll do that ... thanks for the tip.

 

[H.Jordan]

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.

That should be what happens but it seems that "DBing" happens so much that its not possible.

 

[Whitie]

In the last week, I have found 2 large carriers (B***n, Chal*******er) with logistics departments who did not vet who they gave their clients' valuable freight to, and sold the loads to................................Red and White

Lets hope the proper carrier gets paid

 

[GaryS]

Would really be interesting to see if Factoring company responsible for the payment or is the re-broker

 

[MikeJr]

Typically, factoring companies have nothing to do with paying anyone but their client. It's simple really:

They purchase an invoice (the right to collect on the invoice) for an agreed percentage of the invoice. They care about the credit worthiness of the BillTo party and not a heck of a lot more than that. Everything else to do with that invoice, generally speaking, is not relevant to them.

However, their risk is extremely important to them. If a client of a factoring company were a carrier with assets and all of the business conducted by that carrier were handled on their own equipment there's not a heck of a lot to worry about assuming the carrier is at minimum marginally profitable. If however, a client was brokering freight and not intending to pay a transporting carrier a factor should be informed of this right away. If the business conducted by their client differs from that stated on their agreement or the risk level has changed dramatically they would want to know as it may affect their working relationship/agreement.

Keep well,
Mike

 

[GaryS]

Typically, factoring companies have nothing to do with paying anyone but their client. It's simple really:

They purchase an invoice (the right to collect on the invoice) for an agreed percentage of the invoice. They care about the credit worthiness of the BillTo party and not a heck of a lot more than that. Everything else to do with that invoice, generally speaking, is not relevant to them.

However, their risk is extremely important to them. If a client of a factoring company were a carrier with assets and all of the business conducted by that carrier were handled on their own equipment there's not a heck of a lot to worry about assuming the carrier is at minimum marginally profitable. If however, a client was brokering freight and not intending to pay a transporting carrier a factor should be informed of this right away. If the business conducted by their client differs from that stated on their agreement or the risk level has changed dramatically they would want to know as it may affect their working relationship/agreement.

Keep well,
Mike

Typically, factoring companies have nothing to do with paying anyone but their client. It's simple really:

They purchase an invoice (the right to collect on the invoice) for an agreed percentage of the invoice. They care about the credit worthiness of the BillTo party and not a heck of a lot more than that. Everything else to do with that invoice, generally speaking, is not relevant to them.

However, their risk is extremely important to them. If a client of a factoring company were a carrier with assets and all of the business conducted by that carrier were handled on their own equipment there's not a heck of a lot to worry about assuming the carrier is at minimum marginally profitable. If however, a client was brokering freight and not intending to pay a transporting carrier a factor should be informed of this right away. If the business conducted by their client differs from that stated on their agreement or the risk level has changed dramatically they would want to know as it may affect their working relationship/agreement.

Keep well,
Mike

Thanks for information

 

[MikeJr]

I can't speak to every factor and every agreement with their clients. This is my take based on my past experience and conversations I've had with people in the factoring industry.

Keep well,
Mike

 

[Jim L]

After doing a bunch of reading, I stumbled over BIA 178(1)(e):

Debts not released by order of discharge

• 178 (1) An order of discharge does not release the bankrupt from
  • (e) any debt or liability resulting from obtaining property or services by false pretences or fraudulent misrepresentation, other than a debt or liability that arises from an equity claim;

After seeing this, I wonder how hard it would be for someone to force someone else into bankruptcy. I see banks do it all the time but they do this to protect their secured credit.

What I am getting at is that if a non-paying broker or a double-broker was forced into bankruptcy due to oustanding debts the debtors can claim that some of the outstanding funds due cannot discharge them and eventually it must be forced upon the directors of the companies. I don't think it would be hard to prove that funds in trust were used improperly and in the case of double-broker there was fraudulent misrepresentation.

Maybe the legal minds on here can chime in to opine.

 

[BIGGE]

When trucking companies have to factor, that is a clear indication they are not a very good manager and have no business sense when they enter into the fray by cutting rates.

 

[BIGGE]

Try asking is they use a factoring company before you take the load.

 

[reddispatc]

with a Facotring company, can you solict them to pay invoices from a carrier if you are brokered a load, and have not been paid from their client. Example BVD capital is the factoring company, the carrier brokers loads and does not pay the true carrier. Does BVD have any liability or ownus to pay the end mile carrier?

 

[economy]

with a Facotring company, can you solict them to pay invoices from a carrier if you are brokered a load, and have not been paid from their client. Example BVD capital is the factoring company, the carrier brokers loads and does not pay the true carrier. Does BVD have any liability or ownus to pay the end mile carrier?

No, factoring companies are not responsible for any payments. If any of the factoring companies do, it's only out their good will only.