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Freight Brokers:#1 Advantage/Disadvantage of Factoring Companies - YouTube
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so in today's video i'll give you a
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quick snapshot of what a factoring
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company is
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how that relationship works with new
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freight brokers i'll then go into one
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big
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advantage and disadvantage of using a
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factoring company and then i want to
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give you my opinion on whether or not a
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new freight broker should engage in a
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relationship
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with a factoring company and then as a
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new freight broker if you decide a
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relationship is best for you
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what's the duration of that relationship
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how long should you be in relationship
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with a factory company
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so sit back relax for a minute and enjoy
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the video
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so now if this was your first time here
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so now let me give you a quick snapshot
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of how a factoring company works
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remember before i told you that a
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business is about making money
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so a factoring company is a business so
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they are about making money
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and what they realize is that there's an
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opportunity amongst business owners like
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me
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like you if you have a small business or
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you have a freight broker business
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they understand that there's an
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opportunity to service
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the problems that you have they have you
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have a problem
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and they have a solution to your problem
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they say hey brandon over at alliance
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logistics
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i know that you're a new freight broker
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and i know that you have a problem
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and i have a solution your problem is
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you're new
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and you don't have a whole lot of cash
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on hand and you have to pay invoices
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you have to pay your carriers when they
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completed loans
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now you can do that in one of two ways
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you can have a
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set of cash of yours that's on the
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sideline that you're ready to pay
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carriers with
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a big nest egg that could exceed fifty
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thousand dollars every month
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that's not a whole lot at all for a new
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freight broker so that means you would
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have to have fifty thousand dollars on
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the sideline and you're gonna pay
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carriers on your own
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or you can use our services and we'll
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let you focus on your core
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responsibilities moving loads serving
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your
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customers and we're focused on making
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sure that
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your customers get paid on time they
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stand in the gap for you
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and say hey we're going to purchase your
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invoices and we're going to pay your
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invoices
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and not only are we going to pay your
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invoices we're going to even pay your
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commission
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so you don't have to wait to get paid
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from the shipper we'll take that on
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we'll wait and let you focus on your
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responsibility to get your money
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to growing quicker than you would having
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to wait on it we'll get you that money
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in your hand so you can utilize it
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because you're a small business you're
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going to need to utilize your money
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and in addition to that we'll make sure
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that quick pay services are available to
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you and connect you with
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efs account or com data account as a
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parent company
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you'll be able to come underneath our
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company and have your own efs account or
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com data account set up
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so that you can make lumper fee payments
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or fuel
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advancements how does that sound so now
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you being a savvy business owner you are
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you just have a couple questions you
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want to pose to the freight factoring
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company
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you say hey sounds like a really good
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service and my company could benefit
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from that type of service but i didn't
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hear you say
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how much it was going to cost me and
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wouldn't it be better off for me
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if i just go through a bank and get a
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business line of credit or business loan
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and get a better rate or can you offer
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those same rates
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and last but not least when i give up
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control of my invoices am i giving up
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total control
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where you're invoicing my shipper now
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and you're having access to all of my
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information i don't have any control
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over that
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how does that work so really good
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questions question number one you said
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how much is it going to cost you well
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it's going to cost usually from two and
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a half to five percent depending on
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the freight factoring company you're
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using when i use the factoring company
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from 2015 to 2018
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i used a company called trans am
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financial solutions
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and i paid five percent for each of the
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years that i was working with that
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company
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now of course after you've worked a year
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or two you may want to go back to the
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table and renegotiate to try to get
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lower rates
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and especially if you've increased
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volume if you had a bigger volume now
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you it's very possible that you can get
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a decrease in rates
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but usually what you're going to see is
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about two and a half to five percent
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depending on the company that you use
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you also ask a very good question about
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hey so wouldn't i be in a better
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position
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if i decided to work with a bank instead
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of working with a factoring company
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wouldn't i get better rates
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yes it's very likely that you're going
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to get better rates with a bank
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but the question is will you qualify
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for a loan will you qualify for a
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business loan of crit line of credit
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if you are a new company and most of us
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as new companies
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the company is not producing anything
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yet you don't have any established
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business credit
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you're very likely not to be approved
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for business line of credit or
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business loan so that is the purpose of
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having a factoring company and your
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third question you ask
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would you be giving up total control of
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your invoices and the answer to that
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question
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is yes in most cases and most times
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you're going to be giving up
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total control of your invoices and your
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factoring company will now be
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invoicing your shipper you will not be
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doing that action you will invoice the
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factoring company
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and the factoring company will directly
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invoice your shipper so they have access
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to all of your shippers information
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now there are several advantages and
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disadvantages of having a freight
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factoring company but for the purpose of
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this video
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i want to stick to what i see as the
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greatest advantage
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to having a factoring company and the
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greatest disadvantage to having a
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factoring company
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so let's start out with the greatest
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advantage the greatest advantage in my
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opinion is
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i get the 100 freedom to move as many
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loads as i possibly can
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without having to worry about how i'm
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going to pay for those loads
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the factoring company is going to ensure
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that those loads are paid for and all i
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have to do is worry about
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focusing my attention on getting more
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and more freight from my shipper without
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worrying
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how i'm going to pay for it that is a
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huge luxury in my opinion
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now this next one is a huge disadvantage
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in my opinion
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and it's one that i struggle with but
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it's kind of like one of those necessary
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evils
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and that is i have to give up total
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control
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to the freight factoring company when it
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comes down to my invoices
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i have to give them access to my shipper
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now i never want to do that because
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that's given
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the shipper or giving the freight
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factoring company
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all of my shippers information their
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direct emails their direct phone numbers
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they get to see what exactly i'm bidding
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on those loads
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what my shippers are paying for those
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loads they get to see
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everything so they got all of the
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information so
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now do you think that it's fair game if
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they say okay well i'm going to go and
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start
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proposing to those shippers that i can
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move those loads for x amount of dollars
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sure it is because they don't sign
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anything with me saying hey they're not
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going to go after
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our shippers you know so that's just
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something that you kind of accept as a
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necessary evil
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to get you through your cash deficiency
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and once you get in a position where you
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start to accumulate cash the whole idea
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is to terminate that relationship after
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some time
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now that leads me into when do i think
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it's a good time to
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start to move away from your freight
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factoring company
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well this is how i looked at it that's
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going to be determined by you and your
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business
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what's happening in your business but i
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think the sooner you move away from a
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factoring company the better
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for you because when you look at it if
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you're going to continue to give
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your factoring companies that kind of
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advantage that is a
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a huge huge bone you're throwing them
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because what you have to understand is
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that
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factoring companies are not just
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factoring companies for example i told
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you i work with
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trans am financial well trans am
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financial is also
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a trucking company you know so we're
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direct competitors so they'll definitely
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use that information i'm sure
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if and go and propose to those customers
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my customers
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what they can get loads done for maybe
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they can get them done cheaper than than
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they see that we're paying for them so
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it's just a lot of information that you
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give away
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when you're using a factory company
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you're giving it
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directly to your competitors sometimes
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so that's a huge one
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that you know that you you definitely
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need to be looking for you know to get
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rid of
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sooner than later and how i look at that
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you know for me it was a three-year
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period
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you know i really wanted to leave at the
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two-year mark but i hadn't
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accumulated enough cash at that point
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and
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you know we were getting we had a
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business line of credit at the
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three-year mark i got a business line of
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credit
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but i wanted sufficient amount of cash
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plus the business line of credit
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to be able to pay for those invoices and
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the third year
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was about the time that we got there so
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i think that you know year three
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may be a time that you may be able to
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look at maybe a little sooner maybe a
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little later
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you would have to look at your specific
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situation and finally would i recommend
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that new freight brokers start a
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factoring company relationship
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absolutely yes and the reason for that
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is because i feel like the advantages
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outweigh the disadvantage even though i
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have a really big
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you know problem with giving my
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information to an outside agency
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with the factoring company it's gonna
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allow for me to move loads freely
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without having to worry about how i'm
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gonna pay for them so i'm willing you
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know to go ahead and accept that
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trade-off
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but of course it's only for a period of
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time but yes i would recommend
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that new freight brokers use factoring
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companies for that reason now if you
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have a surplus of cash
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then you may not need a factoring
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company but if you don't have that cash
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definitely a factoring company would
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would help you
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so a quick summary of what we just
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talked about number one we talked about
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what a factoring company is
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and how does it work number two we
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talked about the advantages and
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disadvantages of using a factoring
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company
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number three we talked about the
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duration how long you should use a
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factoring company if you decided to use
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one
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and number four i talked about whether
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or not i would recommend
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new freight brokers use factoring
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companies so now that's what i wanted to
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share with you today
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i hope this video has been helpful if
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you're interested in learning more about
[620]
the freight broker business
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i want you to go over to my website at
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www.brandonthefreightbroker.com wait for
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the pop-up to appear and then you'll
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have the opportunity
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to sign up for my free five video series
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what this will do is give you the unique
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opportunity of watching me
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as i go through the process of moving
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lows let you see everything that i'm
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doing
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the customers that i'm talking to what
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i'm saying to those customers you get to
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see the entire process
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so go to the website at
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www.brandonthefreightbroker.com
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and register now and don't forget there
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are a lot of people out here talking
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about how freight brokers move loads and
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make money
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but there's one guy who's walking the
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walk talking to talk and showing you how
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it's done
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that's me see you at the top because the
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bottom is much too crowded
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