Factoring Blog

Invoice Factoring Financing For Freight Brokers

image of freight brokerMost freight brokers are entrepreneurs at heart, that started their business due to their industry knowledge, contacts and their ability to find freight loads. Few have the time, or inclination, to focus on the financial details of the firm. The problem is that brokerages have very dynamic cash flows which can be difficult to manage. And it’s easy to get into financial difficulties.

On the payment side of the equation, you have truckers who demand quick payments so that they can run their own operations. Many of these owner operators can’t afford to wait long for a payment because they need money for fuel and other expenses. Some may even request fuel advances.

On the revenues side of the equation, you have shippers who usually ask for 30 to 60 day payment terms. And right in the middle – you have the freight broker who has to orchestrate this transaction and make it work. For larger freight brokers, this is usually not a problem because they have the financial resources to pay truckers quickly and wait for slow paying shippers. For everybody else, this situation can lead to serious cash flow problems if it’s not managed correctly.

One solution – Quick pays

One way to address this issue is to ask your shippers for quick pays. This strategy can work at times, but ultimately leaves your cash flow at the mercy of your shippers, who could revert to their old payment habits. This can lead to unpredictable payments, which is how the problem started in the first place. For many, a better strategy is to use a transportation financing product known as factoring.

A better solution – finance your transportation receivables

This solution solves the problem by accelerating the revenues that are tied to slow paying invoices from credit worthy shippers. It’s a form of financing that provides the funding you need to pay drivers and other expenses, while at the same time minimizing concerns about slow paying shippers. When used correctly, it will help focus your efforts on building your business rather than on managing cash flows.

It works by partnering with a freight bill factoring company, who advances funds to your company while using your receivables as collateral. The finance company also acts as a settlement agent once your shippers pay their invoices in full. One important feature of factoring is that your customers will still pay on their regular schedule.

Transaction details

Most freight broker financing transactions that use a factor finance the receivable in two payments. The first one is called the advance and covers 90% of the invoice. It’s provided as soon as the load is delivered and invoices. The second payment, which covers the remaining 10% (less costs), is provided once your shipper pays in full.

One important difference between financing brokers and financing carriers is that the factor will often pay your truck drivers directly out of the 90% advance. All remaining proceeds after that, go to the brokerage. Finance companies do this because trucking carriers have lien rights, which have priority above all other liens. By paying them directly, the finance company mitigates the risk of potential problems. This also benefits brokers because it outsources a part of their business – carrier payments – enabling you to focus more time on finding loads.

Can you qualify?

This program is relatively easy to obtain. The most important requirement is to have credit worthy shippers and corporate clients. This is critical because the shippers and their payment ability back the transaction. Aside from this, your freight brokerage should also:

  1. Invoice for delivered and accepted loads
  2. Have accounts receivable that are free of liens and encumbrances
  3. Don’t have legal or tax problems
  4. Have owners with industry experience and reputation

Get an advantage

One of the most important advantages of truck factoring financing is that the line is flexible and can grow with your business. This is a very important advantage for entrepreneurial minded freight brokers who are focused on growing their sales. Because of this, freight factoring is an ideal solution for brokers who have cash flow problems due to slow paying shippers, but have substantial opportunities ahead.

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