Freight Broker Factoring: What is it? Freight Broker business, how to use OPM to grow

Freight broker factoring is not as complex as Chinese math. It's actually quite simple. You'll understand what freight broker factors are, how you can leverage them, and what to be on the lookout for.

Freight broker factoring

Selling an invoice directly to a factoring agency is known as freight brokering. Freight bill aggregation is another term for this. The transportation factoring company advances you up to 95% after you have sold the invoice. Sometimes, it can even be as fast as the next day.

The freight broker can pay the customer immediately and doesn't need to wait between 30-60 days. They also have enough capital to pay their truck drivers as well as motor carriers. It is one of many ways to quickly get payments.

How can freight brokers use factoring companies?

Factoring is a process that allows freight brokers to factor in the transportation companies.

It takes only 3 steps.

Step 1: Invoice your shipper and provide freight broker services.

Step 2 - Provide a duplicate of the invoice for the factoring company. In most cases, your first instalment can be received within 1-2 business days. This amount is typically between 90-95% of the total invoice.

Step 3: When the factoring agency receives payment form your shipper they will pay you the remainder - less their fees. Factoring company fees usually range from 1.5% up to 5% on the invoice's face.

Here's one:

Let's suppose your shipper invoice amounts to $1,000. If you don't have freight broker factoring, you would need to wait 60-90 days before receiving the $1,000.

Invoice factoring is a way to get $900-$950 quickly.

The factoring company subtracts their fee (between 1.5% and 5%) from any remaining balance once the shipper has paid the invoice. This means that they retain $15-$20 in factoring fees and advance the rest of the invoice to you.

Freight Broker Factoring: Benefits

• Fast cash for your business expenses.
• As your business grows so does your immediate cash flow.
• Include comprehensive free credit checks for shippers.
• To process carrier payments, ensure you have sufficient cash.
• It allows you to bridge cash flow issues.
• Increase your working capital.
• This is based upon the credit history of your customers, not yours.
• Avoid lengthy wait times and the excessive paperwork required by other lenders (such a banks)
• This allows you to offer quick payment options for trucking companies.

Disadvantages to using a Freight Factoring Company

• The factoring fee is typically 1.5% to 5.5%. This makes it more expensive than traditional bank loans.
• Some shippers might not be familiar with factoring, or may be worried about the cost of factoring from a third party.
• For clients who refuse or are unable to pay unpaid freight bills, this is not the right option. Factoring programmes are not collection agents.

Factoring Companies: How They Can Help Cash Flow

Factoring invoices is used by many businesses to raise funds when traditional bank loans and credit lines are not available. 

Small freight brokerages, owner operators and trucking firms are the most common users in the logistics industry. They rely on quick cash to fund their daily operations.

Carriers rely on freight brokers to pay them quickly, many times, and even to provide fuel advances before they deliver the load.

Shippers, on the other hand, like to hold their money for as long as feasible. Shippers typically pay freight broker within 30-60 days. This is why freight broker factoring became so popular in the last 20 years.