The Factoring Company’s “Reserve Account” … Do Trucking Companies Need One?

If you have used factoring services, you are likely familiar with the requirement that you maintain a “reserve account”.  Consider this….

“Reserve accounts” are established when a factoring company deducts a “reserve”, as much as 10% in addition to your factoring discount fee, from the amount they pay you.  There are two primary reasons that these “reserves” are said to be needed.

“Short Payments” for problems in delivery:  When a shipper/broker believes a trucking company has failed to meet the requirements of a freight contract, they are usually allowed to reduce the amount they pay you.  Maybe the delivery was late, or the cargo wasn’t tarped, or perhaps there was minor damage to the load.  Many factoring companies require a reserve so they can deduct these “short payment” amounts from your money they are holding…  to be sure they get 100% of the amount they factored.

“Bad Debt” chargebacks:  The second most common reason reserves are required, is to protect the factoring company from losses if they are unable to collect from the shipper/broker.  If your factoring agreement is “with recourse”, the factoring company can recover any invoices they are unable to collect by charging them against your reserve.

W W Payment Systems looks at these situations differently.  We do not require any reserve accounts!!  If the shipper shorts the payment because of a purported delivery issue, we sort it out with you, our customer.  Delivery issues are a reality in the trucking business.  The driver is the best one to say what happened, and why.  If the driver confirms there was a problem, we sort out the amount with them.  If there is a disagreement about it, or the amount is small, we simply absorb it as a cost of doing business. 

Our customers don’t need a reserve for bad debts… because all our agreements are “without recourse” … meaning that once we buy a load from our trucking customer, we take all the risk of non-payment.  No reserve is needed because our customers never have to worry about a bad debt chargeback.  We take all that risk as one of the primary benefits of doing business with us.

So… do trucking companies really need reserves with their factoring company???  We don’t think so.   

Be safe, and roll on!