Freight Broker Factoring – How To Finance a Freight Brokerage

The current business financing environment is not particularly favorable to freight brokerages. Finding conventional business financing such as a business loan or a line of credit remains difficult for most small and mid-sized freight brokerages. Consequently, most freight brokers tend to have some cash flow problems.

The most common reason for cash flow problems is slow-paying customers. Customers take 30 to 60 days to pay their freight bills; however, freight brokers have to pay drivers quickly – forcing brokers to withdraw reserve funds to meet this obligations. Sooner or later, brokers run out of reserve funds and into problems.

Can quick-pays solve this problem?

One way to solve this problem is to ask customers for quick-pays. While this strategy works well at times, it’s not a reliable strategy. Your cash flow may improve, but it will remain unpredictable and difficult to forecast. Ultimately, your brokerage will be at the mercy of your customers, who can always change their minds.

A better alternative

Another alternative involves freight bill factoring. This option solves the problem of slow-paying customers by using a financial intermediary – a factoring company – who advances you funds against your slow-paying invoices. This solution gives you the necessary cash (and breathing room) to meet your business obligations while you wait to get paid by customers.

The freight broker financing transaction settles once your customer pays the freight bill in full. The following article has more information on how this solution works: “What is Freight Factoring?

Easy to get

One of the main advantages of freight broker factoring is that it’s easier to get than other forms of financing. The most important requirement for this solution is that your brokerage work with shippers that have good commercial credit. Also, your company must have a good track record and be free of liens or judgments

This solution is also available to start-up freight brokerages, provided the company owners and operators have industry experience.

Costs

The cost of a financing facility depends on the risk profile of your brokerage, but it usually ranges from 1.15% to 3.5% of the invoice and is determined by the quality of your invoices and your financed volume.

Differences with conventional factoring

Freight broker financing has one important difference from conventional transportation factoring: in some instances, the freight factoring company may actually pay your drivers directly on your behalf for two reasons. First, direct payment helps the broker by offloading this routine task and enabling them to focus on growing their business. Additionally, it helps prevent drivers from filing a lien that could take priority.

Get an instant quote

We are a leading freight factoring company and can provide you with high advances at low rates. For more information, get an online quote or call us at (877) 300 3258.