Making timely payments as a broker is more than just important - it’s a necessity. On-time freight payments directly impact your credit score, carrier relationships, reputation, and even the number of follow-ups you receive from carrier factoring companies.
On the other hand, late payments can negatively impact your freight broker credit, make carriers less likely to work with you again, and negatively impact your reputation in the industry.
By implementing the best practices we’ve outlined below, you can streamline operations, build trust with carriers, and potentially open new revenue streams. These are our top five essential freight payment best practices that every broker should start implementing today.
1. Pay Your Carriers Before Paying Yourself
Getting into good habits when paying carriers is a cornerstone of building a successful brokerage. This means prioritizing paying your carriers first, before paying yourself.
Many brokers might think this doesn’t matter, because they think there will always be enough to pay their carriers. This unfortunately is where many brokers run into trouble, because when they get into the habit of paying themselves first and run into a cash crunch, it can leave carriers hanging with delayed or unreliable payments.
Paying your carriers first helps maintain healthy relationships and avoids any possibility of business disruption due to delayed payments. By ensuring carriers are paid promptly, you guarantee continuous, reliable service from carriers, prevent debt spirals that can quickly derail your financial stability, and build a reputation as a trustworthy partner in the industry.
To implement this effectively:
- Establish a clear payment hierarchy within your business. Make it company policy that carrier payments come first.
- Implement rigorous cash flow monitoring systems. This could involve daily cash flow checks or using specialized software to keep a constant eye on your financial health.
- Consider setting aside a dedicated cash reserve to ensure you always have the necessary funds available, even when the unexpected happens.
2. Offer a QuickPay Program
QuickPay has quickly become one of the most popular methods for payment among carriers. These programs give carriers the ability to be paid within 24 hours after delivering a load, making it hugely popular among carriers who are used to 7-14 day payments (or longer). Carriers who want to be paid through QuickPay are often reluctant to work with brokers who don’t have it available, making it more difficult for brokers to find reliable carriers if they don’t offer a QuickPay option.
While QuickPay is great for carrier retention, it does come with a few caveats. First, it should only be offered to reliable carriers you’ve worked with before, or those vetted through programs like MCP. This helps reduce the possibility of fraud and misuse.
Brokers should also consider charging a fee to carriers based on the speed of payment. This can range from 1-3% of the invoice amount, depending on how quickly the payment is made, giving brokers a new revenue stream.
Benefits of a QuickPay program include:
- Improved carrier satisfaction, leading to stronger, more loyal partnerships.
- Keeping drivers on the road and loads moving, improving overall efficiency.
- Potential for a new revenue stream through QuickPay fees.
When implementing QuickPay, be sure to keep the following tips in mind. First, don’t offer QuickPay to first-time carriers to avoid fraud. Brokers should also look for a factoring company like Denim that doesn’t charge for QuickPay, giving you the ability to add a new revenue stream by charging a fee.
3. Pay Consistently and On-Time
Making payments consistently and on-time, every time, is critical to growing your brokerage. This gives your carriers a predictable, reliable payment schedule they can depend on, all while building your broker credit.
With inconsistent payments, brokerages will be bombarded with calls from carriers wondering where their payment is, when it will come, and wondering if they should work with you again. This inconsistency also negatively affects your credit score, making it more difficult to find carriers in the future, get lines of credit and loans, and grow your brokerage.
In order to ensure consistent on-time payments, be sure to:
- Set up automated payment systems. This removes the human error factor and ensures payments are made like clockwork.
- Clearly communicate payment schedules to carriers. Transparency about when they can expect payment can significantly reduce payment-related inquiries.
- Leverage a payments partner like Denim who provides flexible payment settings that can be tailored to your needs to ensure carriers are paid on-time and consistently.
4. Pay Carrier Factoring Companies Near 30-day Terms
More and more often some carriers are choosing to factor their loads, which means brokers need to pay their carrier’s factoring company instead of the carrier directly.
While carriers are used to being paid quickly, sometimes within 24 hours with QuickPay, it’s possible to shift the payment terms with factoring companies to net-30 terms. Making these payments consistently will help reduce follow-up calls from carrier factoring companies, and will help improve your credit score with agencies like Asonia.
We generally recommend paying carrier factoring companies in 27-28 days on net-30 invoices, to stay off of their follow-up call lists. To do this consistently, it’s best to use set-and-forget payment settings through your payments software. Brokers should also monitor and audit invoices to ensure they’re accurate and submitted promptly to avoid any delays in payment.
5. Work with a Factoring Company
Implementing all of these systems and rules into your brokerage might seem like a lot of work - and it is when done manually for every invoice and carrier. That’s why we recommend brokers work with a factoring company to automate most (if not all) of these processes.
Freight factoring provides immediate cash flow to your brokerage, giving you the ability to pay carriers right away through programs like QuickPay. Factors like Denim even include a free QuickPay option for brokers, letting you add new revenue streams that often make up for factoring fees immediately. This cash flow also helps cover operating expenses, which would normally need to be delayed until shippers pay their invoices in 30-60 days.
In addition to automating much of your back-office and covering immediate cash flow needs, freight factoring can also help improve your credit by automating payments to carrier factoring companies, and ensuring that payments are made on time consistently.
Here’s our top tips for considering a factoring company:
- Research and choose a reputable factoring company that aligns with your business needs. Be sure to take into account their industry experience, technological capabilities, and customer service.
- Regularly review the terms and fees associated with the factoring service, and make sure they’re competitive and won’t increase significantly as your business grows.
- Consider how the factoring company integrates with your existing systems and processes. The right partner should make your operations smoother, not more complicated.
Conclusion
By adopting these best practices, your brokerage can significantly improve its cash flow, strengthen carrier relationships, and improve the stability of your business. These strategies not only help you avoid late and missed payments but also position your brokerage for long-term success in the industry.
Your payment practices are a direct reflection of your business's reliability and professionalism. By implementing these best practices, you're not just improving your operations – you're investing in your reputation and future success.
If you’re ready to instantly streamline your freight payments and take your brokerage to the next level, get in touch with the Denim team to find out how our factoring services can be tailored to your brokerage's unique needs. With the right partner and practices in place, managing your payments can be transformed from an arduous task into something that moves your business forward, drives new revenue, and helps your brokerage grow.
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