Understanding the Freight Broker Credit Check Process
Before talking about how to build credit with carrier factors, let’s look at the credit check process. Much like how broker factoring companies credit check shippers to ensure payment reliability, carrier factoring companies also credit check brokers.
Carrier factoring companies typically look for:
1. Credit and payment history. Consistently paying on-time over an extended amount of time demonstrates creditworthiness.
2. Time on MC number. Brokers with over one to two years on their MC number are preferred, as this indicates stability and reliability.
(Have a new MC number and need to start your credit from scratch? Check out our success story with River City Logistics! They used Denim to establish credit and build their carrier relationships)
.png)
3. Red flags. Marks on your credit and business history such as delinquencies or bankruptcies negatively impact your creditworthiness.
Is there room for improvement in your freight broker credit? Don’t fret. We’ve compiled a few tips to help you gain credit with the top carrier factoring companies.
Tip #1: Make Consistent Payments
The most important consideration in building trust and credit with a carrier factoring company is payment consistency. Regular, on-time payments not only establish a reliable payment history, but also show that you’re a trustworthy partner.
Here are some strategies to help maintain payment consistency:
- Utilize Automated Clearing House (ACH) for payments and implement software that automates invoice processing. This reduces delays and errors, ensuring that payments are made promptly.
- Use financial forecasting tools or freight broker software to anticipate cash flow needs. If possible, consider paying carrier factors within Net-30. Not only does this help with your cash flow, but it can also help reduce unwanted calls from carrier factoring companies.
- Employ freight broker factoring services to ensure liquidity and cover carrier payments promptly.
Consistent payments show that you’re a trustworthy broker that carrier factoring companies want to work with and today’s broker technology makes it easier than ever to make consistent, on-time payments. For example, we helped Peregrine establish reliable carrier payments and achieve an A rating on TruckStop.
Tip #2: Factor Your Invoices
Invoice factoring can be a lifesaver for brokers struggling with cash flow issues. Most factoring companies will pay your carriers for you, eliminating the risk of falling into a debt spiral or delinquency.
Factoring companies pay your carriers directly, ensuring that payments are made on time, every time. This practice helps build a positive payment history without lifting a finger. By taking the guesswork out of carrier payments, you can focus on other aspects of your business without worrying about payment deadlines.
When choosing a factoring company, look for one that offers flexible terms, integrations, and excellent customer service. Don’t be afraid to ask important questions about the factoring company before working with them.
Tip #3: Send a Days to Pay Letter
A "Days to Pay" letter is a document that provides information about how quickly a freight broker typically pays its carriers. The letter is often issued by a third-party with access to the broker’s payment history, such as a factoring company or credit reporting agency.
Here are some of the benefits of sending a days to pay letter:
- Reassures Reliable Payments: Serves as a credibility tool, reassuring carriers and factoring companies of your reliable payments.
- Enhances Transparency: Provides carriers with clear expectations regarding payment schedules, enhancing transparency in business transactions.
- Builds Trust: Helps build trust between carriers and brokers, especially when initiating new relationships or when a broker is less known in the market.
What Does a Days to Pay Letter Include?
A Days to Pay letter is a powerful tool that not only boosts a broker’s credibility but also fosters stronger, more transparent relationships with carriers and factoring companies. Here’s what it includes:
- Average Payment Time – The average number of days it takes for the broker to pay an invoice after receiving it.
- Payment Range – A range of payment times showing the fastest and slowest payment periods.
- Volume of Transactions – Sometimes, it includes the volume of transactions over a specific period to provide context on the reliability of the average days to pay.
Build Creditworthiness with Carrier Factoring Companies Through Denim
More and more carriers are using a freight factoring company and knowing how to work with these factors efficiently can help you optimize your brokerage. By focusing on payment consistency, leveraging invoice factoring, and utilizing tools like the Days to Pay letter, you can build a strong freight broker credit score with carrier factoring companies.
At Denim, we help brokers maintain cash flow, improve their payment consistency, and get valuable insight into their brokerage operations. To learn more about our factoring solutions, request a demo today.
%20(1).jpg)
.jpg)
.png)
.png)
.png)
.png){kind=spacer}
.png)
.png)
