While it’s financially rewarding, running a successful freight brokerage can be very challenging. One of the biggest financial issues comes from that fact that you need to pay your expenses quickly, but your revenues flow in slowly.
To be effective in this business, you will need to pay carriers and drivers very quickly. The best drivers often demand this. At the same time, shippers that don’t offer quick pay options will usually pay their novices in up to 60 days. This leaves you – the freight broker – in the middle of the transaction. Obviously, if your brokerage has a cash reserve, you can use it to pay expenses while waiting for your invoices to pay. But if you don’t have a reserve, you may run into cash flow problems.
Cash flow problems affect growth
Unless you have adequate financing, growing too fast may hurt you. You can reach a point where you simply run out of money and are left unable to meet your obligations. Although that’s a worst case scenario, it happens all to often to brokers that are not keeping track of their working capital.
Unless you fix your cash flow problems, you won’t be able to grow. At least, not to your full potential.
Improve cash flow. Finance your freight bills
One way to solve this common problem is to finance your receivables. It works by partnering with a factoring company who advances funds for your slow paying invoices. This provides your business with immediate funds that you can use to pay drivers and carriers.
Freight bill factoring enables your freight brokerage to work with shippers and commercial clients who pay their invoices in 30 to 60 days. It enables you to take the freight load and finance the invoice if you need money.
The invoice is usually financed in two payments, which are called the advance and the rebate. The advance is provided as soon as the load is delivered and accepted by your client. It covers 90% of the gross freight bill amount. The remaining 10% is rebated, less the fee, once your client pays on their normal schedule.
The factor will pay your carriers
There is one important difference between a freight brokerage financing program and conventional factoring. You carriers will be paid by the factor directly from the advance. All remaining proceeds after that are remitted to your company. This has the added benefit of handling an important task on your behalf, allowing you to focus more time on getting new clients.
Does your brokerage qualify?
An important difference between invoice financing and other types of financing, like lines of credit, is that it has simple qualification requirements. More importantly, the collateral that the transaction uses are your invoices. As long as they are from high quality commercial clients, you should be able to qualify.
Additionally, your company should be well managed, it shouldn’t have serious tax/legal problems and your invoices should not already be pledged as collateral.
Supports your growth
This financing solution will help support your growth. Obviously, you can use the line to offer payment terms – up to 60 days – to clients that need it. But also, the line is designed to grow as your sales increase. Getting a line increase can usually be done without additional underwriting, as long as your customer have good commercial credit.
This makes factoring freight bills an ideal solution for growing freight brokerages that have cash flow problems due to slow paying clients, but are growing quickly.
Get more information
Are you looking for factoring? We are a leading factoring company in Canada and can provide high advances at low rates to freight brokers. For information, get an online quote or call (877) 300 3258.