Freight brokers who are growing their businesses quickly often encounter cash flow problems. In this article, we discuss how to finance a growing freight brokerage. We answer the following questions:
- What is the biggest financial problem?
- Are quick-pays the solution?
- Is factoring the right financing tool for a brokerage?
- Is factoring right for you?
Your biggest problem: Cash flow
The most common problem for transportation brokers is managing cash flow – specifically, balancing income from shippers and payments for carriers.
On one side, you have shippers that want to pay you in 30 to 60 days. They pay on these terms to protect their own cash flow. Unfortunately, you don’t have much of a choice. If you want to work with them, you have to accept those terms.
On the other side of the transaction, you have transportation carriers. They have their own cash flow demands. They want you to pay them as quickly as possible.
As the intermediary, the logistics company stands in the middle of this transaction – balancing both sides to make sure that all parties are satisfied.
Can shipper quick-pays solve this problem?
Transportation brokers wouldn’t have cash flow problems if their shippers offered quick-pays. Quick-pays can be a great resource when you can get them. But they have one big problem.
Quick-pays are not reliable. Some of your shippers may offer them – while others don’t. Also, shippers that provide quick-pays can stop offering them at any time. Quick-pays are great if you can get them, but you can’t always count on them.
Factoring provides reliable cash flow
A more reliable alternative to improve cash flow is to use freight factoring – a specialized form of factoring that is available to transportation companies.
Factoring improves your cash flow by providing you an advance on slow-paying invoices. You don’t have to wait for shippers to pay you. Instead, you get immediate funds from the factor. The factor holds your invoice and waits to get paid by your client.
Transactions are simple. Once you get set up as a client, you submit approved invoices to the factor. The factoring company advances up to 90% as a first installment. The remaining 10%, less a fee, is advanced once your shipper pays their bill after 30 to 60 days. Learn more by reading “What is freight factoring?”
Easy to get
One of the main advantages of freight broker factoring is that it’s easy to get – certainly much easier than other forms of financing.
The most important requirement is that your brokerage work with shippers that have good credit. Also, your company must have a good track record and be free of liens or judgments
Factoring is available to freight brokerages of all sizes, including start-ups. It can be a great tool to grow your new business.
Financing lines are flexible
Factoring lines are flexible. They are determined by your sales volume and the quality of your shippers. The size of your available line can grow as your sales increase. This flexibility makes them ideal for growing companies.
The cost of a financing facility depends on the risk profile of your brokerage. The factoring fee ranges from 1.15% to 3.5% of the invoice. This cost is determined by the quality of your invoices and your financed volume.
Freight broker factoring has one important difference from conventional factoring. The freight factoring company will usually pay your drivers directly on your behalf.
This carrier payment is subtracted from the 90% advance that factoring companies provide. This detail is important.
The main reason factors pay carriers directly is to ensure that carriers get paid promptly. Otherwise, carriers could file a lien against the payment. This lien interferes with the factoring company’s ability to get paid.
Having factors pay your carriers directly has one advantage. Direct payment helps brokers by offloading a routine task, enabling you to focus on growing your business.
Factoring does not work if you are trying to double-broker a load. Factoring companies can only finance loads that you broker directly.
Is factoring right for my company?
Factoring can be a great solution for your company if:
- You can’t afford to wait 30 to 60 days to get paid
- You have quality shippers
- Your business is growing quickly
- You cannot get a loan or line of credit
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 toll-free at (877) 300 3258.