Running a successful freight brokerage requires cash flow to be properly managed. While customers may take 30 days+ to pay their freight bills, Carriers demand to be paid sooner than later. This may be exceptionally true for a new freight brokerage. Carriers will often request fuel advances and quick pay in order to haul freight for a new entity. Fortunately, factoring companies for freight brokers can provide relief to keep their businesses afloat.
How do you choose the best freight broker factoring company?
There are many factoring companies that specialize in the trucking and freight industry, and they are all hungry for your business. Choosing the right one out of the bunch can be overwhelming.
But the first thing you should do is ask yourself a few questions to determine what your goals are.
How long do you plan on factoring your freight bills?
Ask yourself this question as it can be very important in determining the freight broker factoring company that you decide to go with. While most will recommend to discontinue the use of factoring as soon as business conditions permit, this may take longer for some businesses. Furthermore, you may have other reasons to continue factoring. Many freight brokers like to factor in order to focus more of their time on customer acquisition and booking loads.
If you plan on discontinuing it’s use as soon as you can, spot factoring is a good tool to utilize. Another good option may be a nonrecourse factoring arrangement. Some may have terms as short as 90 days, and some may not have a minimum term length at all. But be aware, most freight broker factoring companies will place higher rates on these types of services.
Do you want to be completely hands off?
In other words, do you want to be responsible for your customers paying their invoices, even after you’ve factored them, or do you want to wipe your hands completely and just get your cash? If it’s the later, nonrecourse factoring is a good choice in this situation as well.
If you are comfortable with carrying the credit risk of your customers, recourse factoring can be a good choice that will provide lower rates.
How soon do you need your cash?
You can sometimes have your cash in as little as 24 hours. Some companies will even offer same day funding, though it comes at an added cost. Some factoring companies for freight brokers will allow you to receive a lower rate if you can wait a bit longer to get paid. If you can wait 7 days to get paid, there’s no reason to not take advantage of the discount you can receive.
What method of payment do you prefer?
Most factoring companies for freight brokers offer ACH bank transfer and Wire transfer in addition to paper checks. ACH is the quickest and cheapest way to get paid. Wire transfers usually have an additional fee, and paper checks obviously take a few days to receive. Some freight factors will even deposit the funds to a ComData account, though this often comes with additional fees.
You should take note of which type of payment you prefer so you can compare. Each company will have different terms, and a small transaction fee can create a higher total cost of factoring, even if you’ve been able to secure a low rate.
Related: How Much Does Factoring Cost?
Are any other perks or benefits important?
Many freight broker factoring companies offer other perks and benefits that you can take advantage of. A popular one is an online web portal or mobile app. These can allow you to scan and upload your document digitally, rather than faxing or mailing them. It can lead to much faster processing, and there’s no doubt that it is convenient.
Some offer loadboard discounts, and some even have their own loadboards that you can take advantage of. Fuel cards are popular among freight factoring companies, but those are targeted more towards carriers.
Freight factoring can be a useful tool for new or established brokerages. There are many choices out there, so it is important to ensure that you know exactly what your goals are when weighing your options.