subject: Freight Broker Factoring is providing a cash flow solution as banks stay away from freight brokers [print this page] Freight Broker Factoring is providing a cash flow solution as banks stay away from freight brokers
The majority of goods shipped using ground transportation utilize the services of a freight broker. The freight broker acts as a middle man by matching the shippers of goods with the trucking companies or carriers that move the goods from point to point. Unfortunately, this also leaves them in the position of being the middle man in the cash flow during the transaction process putting a strain on the company's working capital. Often freight brokers do not have the option of using traditional banks credit facilities as they have very limited assets.
The way the cash flows goes like this:
The shipper receives an invoice from the freight broker after the goods have been delivered.
The shipper then pays the freight broker normally in 20 to 40 days.
The freight broker receives an invoice from the carrier that needs to be paid in 5 to 30 days.
The freight broker then needs to pay the carrier in most cases before they receive payment from the shipper.
The common solution in the industry is freight bill factoring. Many transportation factoring companies no longer work with freight brokers so even this form of working capital is getting harder to find for freight brokers. The way it works is the factoring company provides up to 100% of the invoiced total to the freight broker the day they receive the invoice and proof of delivery from the freight broker. This allows the freight broker to pay the carrier within a few days instead of stringing carrier payments out. The factoring company then receives payment directly from the freight broker's shippers, allowing the freight broker to keep the difference and the profit.
Most factoring companies charge 1% to 4% for freight bill factoring, and rates can vary by 50% from one company to the next so it's very important to check a few and make sure your getting a good deal. If you're a freight broker that has opportunity to grow, but cannot support the cash flow then freight bill factoring may provide a solution.
