Financing and Cash Flow for Freight Brokers

As with most startups, one of the biggest challenges new freight brokers face is the lack of cash flow to keep their business alive. Just like the body needs a constant flow of blood to keep it nourished and alive, a business needs a constant supply of cash coming in to pay for the expenses encountered in normal operation.

In the freight brokerage industry the carriers who move your freight will usually expect to be paid within about 21 days of delivering the load. The companies that pay you to broker their freight will often pay you anywhere between 30 and 60 days. The time in between, which is often several weeks up to a couple months you will need to front the money while waiting to be paid. Problems arise when you are moving numerous loads each week, the several thousand dollars per load adds up to a lot of money. So where do you come up with this money?

Factoring companies buy other companies’ receivables, basically being paid the debt when it comes due, and taking on the risk and slower pay in exchange for a percentage or fee off the top of the receivable. Though this will eat away at your profits slightly, while getting started, this is a great option for new brokers who don’t have the credit or cash available to finance it on their own.

Some factoring companies don’t do factoring for brokers, or may even carry a minimum amount which may be beyond the amount that most beginning brokers will need. There are several out there, though, that specialize in factoring for smaller companies and even some that specifically target carriers and freight brokers. These companies will be experienced in your type of factoring, and will likely know your specific needs and conditions better than many of the other, larger companies out there. They may even have special services tailored to fit brokers.

There are other ways to gain financing, including gaining approval and access to a revolving line of credit from a bank or other financial institution. This may also be a good way to go, but can be more difficult to qualify for, especially with the recent tightened lending practices we are experiencing in the economy today. Credit cards can also be used if your credit limit is high enough. If you are able to pay it off quickly enough, you may pay no interest with some credit cards. Keep in mind that credit cards generally carry very large interest rates though, which can quickly deplete your margins if you aren’t careful.

Every person will have to weigh out the options for him or herself. No one solution is the best for all freight brokers, but one or the other may be better for your current circumstances. Do your research and decide. It's just like choosing a the right freight broker training. You have to make the call. One thing is for sure; cash flow will either make or break you in the brokerage industry.