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Article: Financing a Freight Brokerage with Factoring

Running a freight brokerage can be very rewarding. From a financial point of view, there is money to be made. But it can also be very challenging.

On one hand, expenses tend to creep up unannounced, especially with drivers. Drivers depend on you to pay them quickly. On the other hand, your clients often make your company wait 30 to 60 days before they pay. These competing interests put you in a challenging position – right in the middle of it all.

The challenge

Your drivers want to get paid quickly, but your clients want to pay slowly. The math doesn’t work. Unless you have a nice reserve in the bank, paying your drivers quickly may be difficult. But many drivers will demand quick payments or they will move loads for someone else.

If this is the case for you, the growth of your freight brokerage is limited by the size of you bank account. You can only pay so many drivers quickly before you run out of money.

The solution: finance your freight bills

One way to solve this problem is to use freight broker factoring – a funding tool that finances your open invoices. Instead of waiting for your shipper to pay an invoice, you can finance your freight bill, use those funds to pay expenses, and settle the transaction when your shipper pays.

The nice thing about this solution is that your shipper and commercial clients do not need to pay sooner: they can pay on their usual schedule.

Usually, the transaction is structured using two installment payments. The first installment is provided immediately and covers up to 90% of the freight bill. The second installment covers the remaining 10% (less the fees) and is provided once your customer pays – at settlement.

How are driver payments handled?

One important difference between financing carriers and brokers is how carrier driver payments are handled. Since drivers have lien rights on the freight bills, most freight factoring companies want to pay your drivers directly. This direct payment is a common industry practice. We can make some selective exceptions to that rule if the owner of the freight brokerage meets certain criteria.

To qualify

If you are interested in using factoring in your freight brokerage, you should:

  1. Be well organized and have all of its documentation in order
  2. Have creditworthy shippers
  3. Have accounts receivable free of liens
  4. Be owned by someone who knows the industry

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We are a leading provider of freight bill factoring for brokerages. We offer competitive plans at affordable rates. For more information, get an online quote or call us at (877) 300 3258.

 

Return to the Freight Bill Factoring Resource Center.