Lines Of Credit For Freight Brokers
The only way to understand the pressures that a freight broker faces every day is to gain a comprehensive understanding of the business model that brokers work in. Cash flow is a huge problem for many different kinds of industries and companies, but it is an enhanced problem when it happens in the freight brokerage business. This is definitely one industry where the size of your business affects your ability to maintain sufficient cash flow to meet financial obligations.
There are several components to the freight broker business model and they all create their own challenges for the broker to meet his financial obligations. The three most significant elements to any broker business are shippers, carriers and the federal government. All three of these pieces need to work in unison if the broker is going to be able to generate any profit at all. The most difficult part for the broker to manage is the shipper side of the equation. But, as we will see, each part of a broker's business model makes the need for strong cash flow extremely urgent and that is why a successful freight broker always has a funding plan that brings all of his financial needs together.
A surety bond is a type of agreement between the freight broker and the federal government which basically states that the broker is doing legitimate business and intends to pay all of its bills. Every freight broker in that operates in the United States must have a surety bond and those bonds are procured through approved insurance companies. If the broker does not pay his financial obligations, then the government uses the bond to reimburse the broker's carriers and then shuts the broker down.
The shipping industry used to be full of mavericks that would take on business and then not pay clients. A broker acts as a liaison between a shipper and a carrier, which means that the broker has a significant responsibility to two parties. Not only does the broker have to make certain that a reliable carrier gets the shipper's delivery from it point of origin to its destination, but the broker also has to collect from the shipper and pay the carrier. This is the point in the broker business model where many brokers that do not have solid financial plans can run into problems.
A good freight broker has an extensive network of carriers available at all times to carry the loads that shippers need moved. In some cases, carriers will bypass having their own sales department and simply work with a broker on an exclusive basis. It can be a win-win situation for the broker and the carrier. The broker has one more fleet it can add to its network of available carriers, and the carriers can focus on maintaining their rigs and meeting shipper expectations.
The fastest way that a broker can grow a network of carriers is to develop a reputation for paying carriers on time. The trucking industry runs on cash flow. A large fleet of rigs requires a constant supply of cash for fuel, maintenance and repairs. The truckers themselves also require their payment in order to keep carrying loads. As long as the broker is able to pay its carriers in a timely fashion, then that broker will be able to expand his network of available carriers and meet the needs of his shippers. But as soon as payments to carriers start going out late, the broker will see his network break down and a long list of problems will start to enter the picture.
Some freight brokers turn to bank lending to pay their carriers. The reason that bank lending is considered is because shippers can often take months to pay their bills. Carriers will not wait months to get paid for the work they have done. There needs to be an intermediary solution that provides the cash the broker needs to pay the carriers while waiting on cash from the shippers. But a bank line of credit is a bad idea for several reasons. For one thing, a bank line of credit adds debt to the broker's bottom line and that is not good for business. A broker needs to avoid debt as much as possible, and bank lending does nothing but increase debt.
The other issue with bank lending is that it has limits. At some point, the broker will bump up against his maximum bank borrowing limit and the bank will stop supplying the broker with necessary cash. The broker is then stuck relying on his shippers to pay their bills, but that is never a reliable way to create a stable cash flow. Once a broker runs out of bank lending space, he is forced to start making drastic decisions that will affect his business for the long term. The broker may have to stop taking on new shippers or he may have to start selling off assets to meet his financial obligations. Since a freight broker does not take on large assets to do his job, it can be difficult to find assets to sell that will help satisfy the financial situation.
One source of funding that does not have a ceiling is the invoices that are sent to shippers. But with most shippers taking months to pay their bills, it is difficult to look at a pile of past due invoices as a source of a reliable cash flow. The freight brokers that find success in their industry have a financial solution that allows them to satisfy carrier bills with the cash that the brokers have on hand. The solution is a business line of credit that is created by an invoice factoring company such as Capital Credit. This form of financing never runs out and it is always available when the broker needs it.
A freight broker may not have many physical assets to work with, but it has a pile of assets in the form of outstanding invoices. Capital Credit has years of experience in utilizing that pile of outstanding invoices as collateral to fund a flexible business line of credit that the broker can use to pay carrier bills and keep his carrier network intact. Capital Credit actually makes it easy to turn outstanding invoices into cash and the best part is that your company's credit score never enters into the equation. Many freight brokers have damaged credit because of the time it takes shippers to pay invoices. But Capital Credit looks past that damaged credit and uses the credit of the shippers to supply a reliable business line of credit.
As long as you have approved invoices coming in from creditworthy shippers, then you have the collateral you need to fund your freight brokering operations. If you can identify with the financial strain that late-paying shippers put on your brokerage business, then you need to contact Capital Credit immediately. We can approve your application and set up your account in three to five business days. After your account is set up, we are able to make financing decisions in 24 hours or less. It is the kind of speed you need to make sure that your business line of credit is always funded and that you always have the cash you need to pay your carriers.
We also do instant credit approvals for your shippers so you will know if an invoice will be approved or not. We can work with you to get approvals of invoices within 15 minutes, which means that you can approve a shipment with confidence. We will use invoice factoring to advance you the face value of your invoices, minus our lending fee. You will have the funding that you need and you will be able to avoid running into the kinds of problems that late payments to carriers can cause.
Capital Credit is an invoice factoring leader with vast financial resources to help your company grow. We are the comprehensive funding partner that you need to meet all of the needs of your shippers while keeping your carriers happy at the same time.