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In 2020, Gartner analyst Balaji Abbabatulla predicted that most most supply chain operations would migrate to the cloud by the end of 2022. As more brokers pursue solutions that support and integrate with the supply chain automation needs of partners and customers, it looks like he was right. More and more organizations in the logistics space — especially freight brokers — are moving financial transactions, transportation management, and other critical processes to the cloud.Why? Here are just a few of the factors driving freight brokers to replace their legacy systems with cloud platforms — and why you should think about doing the same:

1. Integration and Flexibility

Companies developed many of yesterday's legacy systems to handle specific tasks. For example, your legacy payment platform might issue and process invoices, but that's it. While these legacy systems perform their functions well, they have inherent limitations. As a result, freight brokers must often buy different pieces of software to handle different processes, and those software tools rarely communicate with each other.

When software systems don't share data, your team has to spend a lot of time on inefficient administrative processes, entering and reentering the same information into disparate systems.In contrast, cloud solutions are all about integration and flexibility. The average cloud platform bundles multiple functions into a single solution, allowing freight brokers to do more with a more straightforward software system.

For example, Denim's online financial platform can process invoices and payments while also supplying factoring services, credit checks, custom reports, and more.In addition, cloud solutions typically communicate with other cloud software through application programming interfaces (APIs). Essentially, that means different cloud solutions can share data, even if distinct companies make them. That streamlines operations and significantly reduces administrative work for employees. For example, Denim's platform can integrate with QuickBooks and various transportation management systems (TMS), making it easier to track shipments, payments, and vital accounting information.

2. Scalability

Cloud applications also have a scalability advantage over their legacy counterparts. Because cloud platforms can integrate with one another, it's far easier for a cloud software ecosystem to grow alongside your business. You can easily add new tools to your arsenal as needed.With legacy systems, tapping into new lines of business, reaching new partners, or gaining new insight into your company's operations often requires purchasing or commissioning a brand-new specialized software solution. Unfortunately, that also means another tool your people need to learn.

With the cloud, on the other hand, you can often find a solution that does the job and integrates with your existing software, creating a streamlined experience that requires only a minimal learning curve for your team. Given the rapidly evolving pace of logistics automation technology, this ability to adapt quickly has become essential.

Because cloud apps are hosted online instead of in-office hardware, you can also access them anywhere. In short, cloud solutions support remote work. As a result, those brokers already using cloud solutions had an easier time maintaining operations during COVID lockdowns. Similarly, cloud-savvy brokers will also find themselves prepared to weather future disruptions.In addition, given that 57% of job seekers want to work remotely, adopting cloud solutions makes your company more competitive in a tight talent market.

3. Simplicity

Supply chains are complex, with many (literally) moving parts. And freight brokers may have the most complicated position of all — connecting shippers and carriers, managing relationships with both, and ensuring every party gets what they need from the transaction. All that complexity can make it hard to move freight quickly and efficiently where it needs to go, but speed and efficiency are key differentiators for great freight brokers.

Cloud applications can help simplify things in your freight brokerage. By integrating your technology platforms into a cohesive, interconnected system, you make it easier to carry out critical business operations. Data flows between the tools, automating more complicated procedures like processing payments and tracking freight. That, in turn, makes it easier to avoid common mistakes like duplicate invoices and payments. Your team members also have less administrative work to do, allowing them to focus on high-touch, high-value tasks.

4. A Better Partner Experience

While simplicity is a boon to your staff, shippers and carriers will also appreciate the way logistics automation will streamline your operations. You'll be able to make connections between shippers and carriers much faster, and the data gathered by your cloud solutions might even help you make more efficient connections.With a cloud-based payment platform, you streamline the invoicing process and facilitate payment faster from shippers.

This type of supply chain automation means shippers will be happy because they won't have to deal with complicated payment processes, and you could even see fewer late payments as a result. Also, carriers will appreciate getting paid faster, especially if your cloud payment solution has a QuickPay feature. According to some estimates, 90% of brokers still don't have fast digital ways to pay carriers. As such, a cloud platform with QuickPay sets you apart as an ideal broker partner for carriers.

5. Resilience

Resilience is the ability to bounce back from tough times and overcome any challenges that come your way. In recent years, resilience has become a must-have for freight brokers, and cloud systems are inherently more resilient than their legacy counterparts.There are a few reasons for this:

1. Flexibility. The integration capabilities of cloud platforms make it easier to update your software environment to better support sudden changes in business operations.
2. Power. Cloud platforms also tend to be more powerful than legacy systems because they run on the web instead of depending on the processing limitations of an in-house server. That means cloud platforms can typically process more data at a faster pace.
3. Security. Cloud apps support data security by keeping your data backed up in online systems. So no matter what happens to your in-house hardware, your data will be secure and accessible. This factor is significant today, with cyberattacks like ransomware on the rise. Cybercrime has increased by 300% since the start of the pandemic and costs the global economy $6 trillion per year. By keeping your data in secure cloud platforms, you can better avoid the costs of cyberattacks — and the damage your reputation would suffer if sensitive partner information were leaked.

Make the Move to the Cloud

Legacy systems may have served your brokerage well so far, but they simply weren't designed for the fast-paced, data-driven, high-tech world of today. You can try to keep up with the rapid pace of supply chain automation by bolting more software tools onto your legacy system.

However, you're likely to end up with an overcomplicated mess that only makes your people's jobs harder.In truth, every modern freight broker must now be a digital freight broker. By switching to cloud platforms, freight brokers can streamline operations, simplify their software systems, and deliver better experiences for shippers and carriers alike. If you’re interested in learning more about how Denim can help grow your credit and help build your business, we’d love to talk.

Carriers may add accessorial charges to invoices for services above and beyond transporting freight from point A to B.

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Freight brokers must account for these charges when connecting shippers and carriers. Otherwise, shippers may experience unexpectedly high bills.

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While you can’t always avoid accessorial charges, you can prepare for them by understanding these fees ahead of time and why carriers levy them. This preparation lets you set appropriate expectations with shippers. We previously covered six of the most common accessorial charges, but plenty of other events can trigger extra charges from carriers. The following list outlines six more accessorial charges every freight broker should plan for:

What does it take to make a freight brokerage successful? Brokers juggle a lot, from maintaining excellent relationships with shippers to finding reliable carrier partners. But how a brokerage handles freight payments remains one of the most critical factors.

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While every business in every industry requires intelligent financial decisions and processes, the nature of freight brokering means the payment process itself can serve as a make-or-break component in a brokerage’s success.

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To ensure your brokerage will thrive, try following these six best practices for freight payments.

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1. Be Prepared to Float 3 Months’ Worth of Business at Any Given Time

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Broker success depends on ensuring on-time and accurate freight payments, but a broker’s expenditures and income tend to operate on different schedules. Generally speaking, most shippers will pay brokerages on net-30 or net-60 terms, while most carriers will expect a broker to pay on net-15 terms at the latest.

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As a result, brokers must often spend a significant amount of money before seeing their own invoices paid. For this reason, most successful freight brokers have enough cash on hand to float the business for three months as a general rule. Building this liquidity into your financial model will help your freight brokerage mitigate risk and handle any unwelcome surprises – such as late payments from shippers – with relative ease.

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2. Stay Liquid with Factoring

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With that previous tip in mind, how exactly does a brokerage maintain three months’ worth of liquidity? Brokers may use a few methods to support this strategy, including loans, investments, and self-funded capital stores. Still, leveraging invoice factoring for freight brokers remains the easiest and most reliable way.

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Invoice factoring occurs when a brokerage sells unpaid invoices to a third-party factoring partner. The factoring partner will pay out a lump sum for each invoice of the invoice’s total value. For example, Denim offers up to 90% advances. This portion of the payment gives the brokerage immediate cash on hand. Then, the factoring partner will recover payment from the customer. Once the customer pays, the factoring partner will deduct a percentage for its services — usually 1-5% — and pay the remaining balance to the brokerage.

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3. Know the Types of Factoring Available to You

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Factoring offers an effective means to stabilize cash flow without taking out loans. However, brokers should thoroughly understand the process before making a factoring arrangement. In particular, brokers should know the difference between recourse factoring and non-recourse factoring:

• Recourse factoring: If a customer doesn’t pay an invoice, the broker must repurchase the invoice from the factoring service.
• Non-recourse factoring: The factoring service assumes the risk of the customer’s failure to pay. If a shipper fails to pay, the broker keeps the cash advance.

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While non-recourse factoring carries less risk for the broker, it comes at a higher cost since the factoring service takes a higher percentage of the invoice to make absorbing the higher risk worthwhile. Therefore, brokers must balance their financial needs with risk mitigation to determine which arrangement suits them best.

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4. Pay Your Carriers Quickly

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Every broker wants to be a partner of choice for carriers. This way, a firm ensures it always has access to the fleets it needs to move shippers’ freight on time and at a reasonable price. Staying in carriers’ good graces requires paying carriers as quickly and conveniently as possible. Many freight payment solutions, including Denim, now offer carrier QuickPay options that make it easy for brokers to pay carrier invoices immediately. However, did you know that as many as 90% of brokers lack fast, digital methods to pay carriers? When you rank among the 10% of brokers actually utilizing these solutions, carriers will prioritize your loads over the rest.

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5. Be Clear About What Your Invoices Mean

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Freight invoices aren’t always straightforward. In addition to paying freight rates, a brokerage may also have to pay a carrier for accessorial charges above and beyond hauling freight. How a carrier bills a brokerage will affect how the brokerage bills its shippers.

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As a best practice, make invoices to shippers easy to understand, with a clear breakdown of each charge and its reason. That way, the shipper knows precisely what they’re paying for and that working with your brokerage remains a good investment.

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Additionally, many shippers now use freight payment auditing services to keep costs under control. With crystal-clear invoicing, billing mistakes that require an arduous auditing process will disappear.

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6. Don’t Handle Everything in House

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Given the complexity of the freight payment process and the dynamic nature of the supply chain, managing financial transactions through old-fashioned spreadsheets just won’t cut it. There’s a lot of room for error in manual payment processing, and your billing department won’t be able to use efficient tools like QuickPay.

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At least 75% of freight bills now get delivered electronically, so it makes sense for any freight broker to adopt a digital payment platform that allows them to keep up with the times. A reliable digital payment platform also makes it easier to send and receive payments, run financial reports, and exercise more control over brokerage cash flow.

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Many modern digital payment platforms also integrate with transportation management systems (TMS), further streamlining operations and billing. In searching for the right digital platform for any brokerage, consider options that go beyond just a software solution.

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Finding a freight payment partner that offers both digital tools and in-depth expertise can help you develop a freight payment process that truly works for everyone. For example, Denim provides many helpful services beyond digital payments, including factoring, automated invoices, managed collections, QuickPay, and more. A freight brokerage can transform the payment process from a nagging challenge into a strategic differentiator with a good partner and the right platform.

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Effective Payment Is the Foundation of a Successful Freight Broker

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Simply put, freight payment can be a hassle for many freight brokers — but it doesn’t have to be. By following these best practices, you can gain more control over your cash flow, keep shippers and carriers happy, and build a convenient freight payment process that sets your operation above the competition. If you’re interested in learning more about how Denim can help you grow your freight brokerage, we’d love to talk.

Even in the best of times, liquidity may pose a challenge for brokers. Freight brokers must often pay carriers before shippers pay them, which means the money goes out before it comes in. COVID-19 has made the situation even more difficult. Thanks to widespread volatility throughout the supply chain, shippers’ financial conditions can change drastically and on a dime. Some may have to delay payment to brokers beyond the usual timelines. Yet, carriers will not take kindly to delayed payments.

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With that in mind, it's more important than ever for freight brokers to maintain liquidity to give their brokerage a safety net. Here, we share some tips on improving the liquidity of your freight brokerage as you grow.

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Three Ways to Improve Freight Broker Liquidity

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How can freight brokers improve liquidity without jeopardizing their relationships with shippers and carriers? Here are three ways to achieve that goal:

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1. Keep Investing in Relationships

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Logistics is a relationship-driven industry — especially for brokers. A freight broker’s entire business model depends on consistently streamlining transportation for customers and maintaining strong relationships with carriers. When times get tough, brokers must not lose sight of that foundational fact. Performing successfully with carriers and shippers amid disruption helps your brokerage secure long-term partnerships. Perhaps more importantly, shippers will appreciate how your brokerage went the extra mile for them. That confidence, in turn, will put you at the top of their payment lists. Shippers will prioritize paying your invoices because they will not want to lose the value you deliver. Even if payments arrive late, the delays will not seem as severe as they could have been.

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2. Automate Repetitive Administrative Tasks

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When disruptions and pivots occur, liquidity remains a top concern for freight brokers — but not the only concern. Depending on the activity in the supply chain, adjustments to your operations may prove necessary. For example, a surge in demand might require you to find more carriers operating out of sectors less affected by the ongoing disruptions to handle the overflow. If you’re worried about processing invoices and chasing down payments, you may lack the bandwidth to focus on more critical business decisions. Automating these functions using time-saving integrations will free up your workforce to handle more complex, time-sensitive business decisions. Some financial platforms, like Denim, offer managed collections services, which means they retrieve payment from shippers. Financial platforms may also provide automated invoicing, doing away with the task of billing all your shippers manually. When combined, these two capabilities can improve cash flow while liberating brokers to focus on responding to the volatility of the moment.

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3. Try Factoring for Freight Brokers

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Factoring for freight brokers is a great way to maintain usable cash flow so you can continue to focus on growing your business and ensure liquidity. Factoring allows brokers to get immediate cash for unpaid invoices by working with a factoring service. The factoring service then takes on the task of collecting payment from the shipper. So even if a shipper pays late, your brokerage can make sure it has the cash it needs to keep operations running. Even brokers who feel they’ve grown beyond the need for freight bill factoring services can still benefit when external events negatively affect cash flow.Every invoice does not necessarily require factoring. Some factoring partners offer spot factoring, where brokers can collect normally on invoices they expect to be on time while factoring any invoices where they expect delays.

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Maintaining Liquidity Doesn’t Have to Be Hard

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With the right combination of automation, financing, and old-fashioned relationship-building, brokers can stay liquid no matter the obstacles they face. If you’re interested in learning more about how Denim can help grow your credit and help build your business, we’d love to talk.

They say you should never let a good crisis go to waste, and freight brokers have taken that to heart during the pandemic. Amid the turmoil, many prioritized software and technology upgrades that could help them continue delivering for shippers and carriers. Now they’re reaping the rewards.

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How Software Automation Helps Freight Brokers Form Better Partnerships

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The supply chain has spent years fostering digital capabilities, driven by the mass migration of transportation management systems (TMS) to the cloud, an influx of venture capital, and the arrival of digital digital freight apps such as Uber Freight and Convoy.

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However, the onset of COVID-19 made the benefits offered by the cloud not only irresistible — but essential. For example, the pandemic's continuous and unpredictable disruptions made it difficult for freight brokers to strategize. By adopting cloud-based TMS platforms, brokers have gained more visibility into their operations. They can record every shipment detail, often in real-time, and use that data to inform future loads and lanes.

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Similarly, explicitly made for freight brokers, digital financial platforms grant increased financial oversight. Solutions like Denim put brokers in command of their cash flow with factoring for freight brokers and managed collections options. Automated invoicing streamlines billing for shippers, and QuickPay keeps carriers happy with timely payments. Increased visibility and better process control provide a competitive advantage for freight brokers in any economic environment. With insightful data, brokerages can act as strategic partners to shippers and carriers. The efficiency of digital platforms also makes connecting shippers and carriers simpler so that both parties get what they want from brokers. These aspects point toward the ultimate benefits of automated solutions for freight brokers, which include:

• Delivering all-around improved experiences to shippers and carriers
• Gaining the ability to step up existing partnerships
• Attracting new business
• Boosting overall revenue
• Optimizing employees’ time

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With the right freight broker technology, even startup brokers can compete with more prominent names in the industry in terms of service level and capabilities.

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Every Broker Can Be a Digital Broker

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Over the last few years, the digital transformation of the supply chain has given rise to an entirely new category of brokers: digital freight brokers. The digital freight brokerage movement began with companies such as Convoy, Transfix, and Uber Freight, which use self-service digital marketplaces to match shippers with carriers.

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While many shippers still prefer the contract rates and dedicated service of traditional freight brokers, the rise of digital freight options has had some interesting repercussions. Notably, conventional freight brokers have invested more in technology to continue outcompeting the new digital players. This trend is perhaps best illustrated by increasingly frequent partnerships between brokers and TMS providers. By tightly integrating their platforms, brokers and TMS providers can match the speed and convenience of digital brokerage options without losing the benefits of working with a traditional freight broker.

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"The lines between a digital broker and an incumbent, more traditional broker are blurring…a year from now, they will be indistinguishable," said Tim Higham, CEO of AscendTMS, in an interview with Supply Chain Dive. As those lines continue to get muddier, freight brokers who made technology investments and formed vital partnerships early will have a significant advantage over those who held back.

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Are You Ready for the Growth of Freight Broker Technology?

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Many exciting developments have come out of the supply chain's digital adoption trend, but this is just the beginning. Experts anticipate further developments, such as predictive algorithms matching carriers with loads and blockchain-based shipment tracking. Leading freight brokers are already investing in tech strategies to stay ahead of the curve. Not sure where to start with your technology shift? Begin by pinpointing key opportunities to scale, reduce costs or improve profitability for your brokerage. The chances are that an enterprise software suite exists to help you achieve your goals. If you're interested in learning more about how Denim can help grow your credit and help build your business, we'd love to talk.

A freight broker’s brand is only as strong as its carriers. So, your brokerage can potentially hold some legal liability when a carrier runs behind schedule, damages freight, or gets involved in an accident. Even if it doesn’t, however, your brand may suffer damage in the eyes of shippers. You can’t control a carrier’s actions, but you can control which carriers you choose as partners. Proactively vetting carriers before working with them will drive more revenue, mitigate risk to your brokerage, and protect your brand.

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Evaluating Your Carriers as a Freight Broker: What to Look For

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When evaluating carriers, every freight brokerage should weigh the following key performance indicators (KPIs):

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Credentials

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Every carrier needs operating authority from the Federal Motor Carrier Safety Administration (FMCSA) to haul freight. It sounds straightforward, but carriers need different types of authority depending on the cargo they carry and the jurisdictions in which they operate. Therefore, ensure a carrier has the appropriate authority before assigning it a load. You can typically find that information by searching the FMCSA’s Licensing and Insurance system.

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‍Financial Health

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A carrier’s financial health holds nearly as much importance as the financial health of your brokerage. For example, a trucker with cash flow problems could shut down unexpectedly, leaving you in the lurch with no way to get your shippers’ freight delivered. That’s the worst-case scenario, but a carrier’s financial issues may also cause them to cut corners in ways that lead to late deliveries, unsafe operations, and a host of other bad business practices that can ruin your reputation with shippers. Carrier credit checks are a good start, but as a best practice, consider leveraging a carrier monitoring service like SaferWatch® to catch potential red flags with carriers. You can also use sites like Carrier411 to monitor your carriers.

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Compliance & Safety

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A carrier’s safety record can interfere with efficient delivery — or, worse, lead to injury or even death. Such incidents reflect poorly on your brokerage. Additionally, negligent hiring of unsafe carriers may result in legal liability. Check carrier incident histories in the FMCSA’s Safety and Fitness Electronic Records (SAFER) system and pull their insurance certificates. Your carriers need the right insurance for the moving loads, or you could be on the hook.

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Automate Your Carrier Vetting Process

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While thorough carrier vetting protects your broker brand, it slows you down. Performing extensive due diligence may extend the carrier onboarding process, and you need to onboard carriers fast enough to meet shippers’ demands. Fortunately, you can get the information you need without grinding the vetting process to a halt by leveraging technology. A new generation of back-office tools for freight brokers automates much of the manual work. The Denim platform offers valuable integrations that facilitate comprehensive carrier vetting. For example, Denim integrates with the EZ Loader transportation management system, which features a digital carrier database and the SaferWatch® carrier monitoring system. This integration allows you to digitally onboard your carrier partners and remains vigilant about their authority statuses and safety ratings. With the right technology suite, brokers can easily pull safety records, insurance certificates, and other carrier data in real-time — and with improved accuracy over manual processes. Establishing and automating a thorough carrier vetting process makes good business sense. You’ll mitigate risk, work with more carriers that deliver profitable partnerships, and keep your broker brand spotless. If you’re interested in learning more about how Denim can help grow your credit and help build your business, we’d love to talk.

Mitigate risk to your business with no payment delays, improve overall financial stability and business health.

Transportation and logistics companies are expected to see a return to market seasonality, which includes peaks around produce and holiday seasons.

With spikes in business that we haven’t seen since early 2022, freight brokerages will face cash flow challenges.

Though the freight economy is beginning to stabilize, one of the biggest challenges that freight brokers face during a freight recession is the need to pay carriers quickly while waiting for payment from shippers. This creates a cash flow dilemma that can have a significant impact on freight brokerages.If freight brokers are unable to pay carriers on time, they risk damaging relationships and losing valuable business.

Another challenge that freight brokers face during a freight recession is the risk of not being paid by shippers on time.Shippers may struggle to make payments or extend payment terms, which can create a ripple effect on cash flow.

The key to survival is maintaining the cash reserves needed to manage carrier settlements and meet payroll, whether revenues are low or high.

Let’s review various financial solutions that can be used to mitigate the impact of extremely volatile market conditions on non-asset freight brokers, in particular. Many of these methods are available to asset-based brokers and carriers, as well, but non-asset brokers have unique needs that merit special consideration.

Finding Success During a Crisis

Through the recent freight market downturn, most transportation and logistics companies moved fewer truckloads at lower rates, leading to drastic reductions in their overall revenues.

One of the most important reasons to remain solvent during a freight recession is to pay payroll. Texas Trucking Association President and CEO John Esparza said to FreightWaves, “the companies that often survive freight recessions are the ones that continue to employ individuals, even at great risk and debt to themselves.” Employees are the backbone of any business, and it’s essential to have the resources to pay them in anticipation of an upswing. By maintaining a strong cash reserve, you can ensure that your business is in a position to take advantage of new opportunities when the market improves.

Another reason to remain solvent is to maintain your relationships with carriers and shippers. In times of uncertainty, carriers and shippers are looking for stability, and a strong cash reserve can provide the reassurance that your business is equipped to weather the storm.

Market downturns can be challenging, but it’s important to remember that they are cyclical and will eventually turn around. During a freight recession, remaining solvent is critical to ensure that you are prepared to capitalize on the next upswing.

The companies that often survive freight recessions are the ones that continue to employ individuals, even at great risk and debt to themselves.

2023 Freight Indices

Year-Over-Year Outlook

Cash is Critical During Rebounds

Happily, transportation and logistics companies can expect an increase in demand accompanied by higher rates when the economy rebounds. As volume ramps up, freight brokers actually face an increase in financial risk.

While their shipper customers tender more and more freight, many of those shippers may continue to extend payments well beyond 30 days. The freight broker is suddenly faced with a huge sum of payables, preventing or postponing new business acquisition as well as timely carrier settlements.

Paying carriers on time is essential for the broker, who must maintain a high credit score and low days-to-pay rating in order to ensure access to the best carriers and trucks. This is even more important during seasonal periods, when competition among brokers becomes intense, and carriers are increasingly selective about loads, rates, lanes, and brokers.

At that point, many brokers will be forced to choose between two unpleasant outcomes: damaging their credit rating by paying carriers late, or exhausting their cash reserves by paying carriers on time despite the lag in shipper payments. Either of these options can curtail business growth, as the broker will be unable to accept new orders.

Freight Brokers Face Unique Financing Challenges

Large 3PLs typically have cash reserves or lines of credit to carry them through this extreme market volatility.Freight brokers do not enjoy such resources, yet they are forced into the role of a banker who essentially provides short-term micro-loans to shippers, by paying the carrier before receiving payment from the shipper.

The hurdles faced by freight brokers are substantial enough that a large cargo claim, non-payment, or even a late payment, can be enough to trigger a layoff or even bankruptcy. Further, in non-asset companies, the owner may have borrowed against personal property, which makes the stakes very high.

Access to the right financial solutions under fluctuating market conditions can help freight brokers to overcome these and other obstacles:

• Cash Flow Reconciliation: Without sufficient creditor cash reserves, a customer’s slow payment or nonpayment can disrupt business-critical cash flows and may prevent the broker from paying carriers on time or accepting new loads.
• Competition: If the broker has consistent access to funds, outstanding receivables will not prevent the broker from soliciting and servicing new accounts. The financial support enables freight brokers to compete more effectively with large 3PLs and digital brokerages for a share of the rapidly dynamic market.
• Credit score: During an economic crisis or downturn, it is more important than ever to pay carriers on time.Brokers who maintain satisfactory credit scores and days-to-pay ratings will find that carriers are more willing to work with them when capacity tightens again.

Freight Brokers Challenges Solved

with access to the right financial solutions.

How to Choose aFreight Broker Financing Solution

The best financial institutions and services provide not only funding but also support for the broker’s business goals and processes. Brokers should look for these attributes when selecting a financial services provider:

FLEXIBILITY

Easy application | No contract terms | No Hidden fees

The right financial solution enables brokers to choose when and how much support is required. Brokers should look for flexible contract terms, hidden fees, and availability of multiple options to fund. Flexibility enables brokerage companies to retain control over their finances and customer relationships.

RELIABILITY

Positive Reviews | Customer Referrals | Customer Service Representative

The financial services provider must have sufficient resources to support the broker’s needs. The broker can build on this foundation to promote the company’s reputation as a reliable resource for both the shipper customers and the carrier vendors

AVAILABILITY

24/7 Dashboard Access | Next-Day Funding | Phone and Email Support

Modern conveniences, such as dashboards and automation, are critical to today’s fast-paced business environment. Brokers should look for a financial services provider that offers uninterrupted access to funds at any time of day or night, throughout the year.

Financing Options for Freight Brokers

As freight brokers cope with this new, challenging economic period, they need a consistent, reliable source of funding. While good cash flow management is important under any market conditions, a period of retrenchment can deprive the business of its cash reserves. Declining revenues and slow-paying customers combine to erode any cash pad, leaving the business ill prepared for the rebound to come.

If the economy recovers, as is predicted for the coming spring of 2023, freight brokers’ depleted cash resources will be challenged beyond the demands of a seasonal peak. The change in demand will be a double-edged sword for brokers, as shipper customers ratchet up tender volumes and carriers become more selective about loads, routes, and rates.

In order to take advantage of the seasonal upswing, and remain competitive as a desirable partner for both shippers and carriers, many brokers will benefit from financial support. There are five types of financial solutions available, including the do-it yourself plan, also known as self-financing:

Self- Financing

Self-financing is when freight brokers use their own capital to fund jobs.

BENEFITS:

One of the main advantages of self-financing is the control it offers. By self-financing, brokers have full control over their finances and decision- making. This allows them to allocate resources as they see fit and make investments that align with their growth goals. Furthermore, self-financing allows brokers to avoid incurring debt and potentially missing payments that would impact a broker’s credit score.

DRAWBACKS

However, self-financing also has its drawbacks. One of the primary disadvantages is the lack of support for payables. When self-financing, brokers are responsible for covering all of their expenses, which can be challenging during times of slow business or economic uncertainty. Additionally, self-financing may limit a broker’s access to capital, making it difficult to make large investments or take advantage of opportunities.

Nearly 40% of freight brokers

reported wanting to improve cash flow in 2023.

*According to Denim’s2022 Freight Broker Index

CONSIDERATIONS FOR FREIGHT BROKERS

Self-financing is not a viable option for freight brokers without sufficient capital reserves. Many freight brokers do not have the cash reserves needed to pay all carrier invoices on time, especially when shippers pay late.

When the market environment veers suddenly from boom to bust and back again in a short time, those cash reserves can be depleted just as demand soars. A subsequent spike in business volume, however welcome, can increase the pressure on cash flow, and may cause the broker to pay carriers too slowly. That strains relationships with key vendors at a time when their cooperation is needed most urgently. Carriers may file on the broker’s surety bond as a last resort. That action will cover the broker’s payables temporarily, but it will not heal the relationship with the carrier. It will also do long-lasting harm to the broker’s reputation and credit score.

Line of Credit

Freight brokers is a revolving credit arrangement that allows the broker to borrow up to a predetermined amount, payback the borrowed amount and then reuse the credit as needed.

BENEFITS:

One of the main benefits of a line of credit is its flexibility. A line of credit acts as an emergency fund, allowing freight brokers to access capital as needed. This can be particularly useful during slow periods or unexpected expenses. Additionally, a line of credit can provide peace of mind, knowing that there is a source of funding available when it’s needed.

DRAWBACKS

One of the primary disadvantages is that it may not cover all of a broker’s receivables.While a line of credit can provide access to capital, it’s not a comprehensive solution to cover all of a broker’s expenses. Additionally, a line of credit does not provide support for payables, which can be challenging during times of slow business or economic uncertainty.

CONSIDERATIONS FOR FREIGHT BROKERS

Non-asset freight brokers may lack the collateral or financial resources to qualify for a line of credit. Further, if they are able to secure a line, it does not necessarily provide enough working capital to support rapid growth during a market seasonality. Typically, the line will cover a portion of the broker’s average receivables, so a sudden surge of business could easily exhaust the available credit. When the line runs out, the broker is no better off than before, and may be forced to turn away additional business.

Receivable Insurance

Receivables insurance is a policy or plan for freight brokers that secures a freight broker’s receivables up to a specified limit.

BENEFITS:

Receivables insurance protects brokers against serious losses. Freight brokers are often at risk for shipping losses, and insurance receivables can provide peace of mind knowing that their business is protected in the event of an unfortunate incident. This protection can be particularly important for freight brokers with a significant amount of loads on the road.

DRAWBACKS

Receivables insurance is very costly and also has limitations. One of the main drawbacks is that it may not cover all of a broker’s receivables. While insurance can provide protection against losses, it may not fully cover the costs of an incident or non-payment. This means that freight brokers should have contingency plans in place in case their insurance does not provide sufficient coverage.

CONSIDERATIONS FOR FREIGHT BROKERS

Receivables insurance is intended to prevent catastrophic loss, in the case where a shipper customer goes out of business while owing the broker a huge sum. Receivables insurance has several drawbacks, however. The insurance policy does not provide any cash advances or other support to smooth uneven cash flow, as it covers uncollectible debts only after 90 or more days.

Non-Recourse Factoring

Non-recourse factoring is a financing option for freight brokers that provides immediate payment for invoices, streamlining accounts receivables, and eliminates the risk of non-payment by transferring the risk to the factoring company

BENEFITS:

This type of financing provides freight brokers with immediate payment for their invoices, allowing them to improve their cash flow and support business growth.The risk of non-payment is transferred to the factor, meaning if the customer does not pay the factoring company assumes the cost. The process of invoicing and payment is also streamlined, reducing administrative burdens and freeing up time for the broker to focus on other aspects of their business.

DRAWBACKS

Since the factoring company is assuming the risk of non-payment, non-recourse factoring is very expensive and selective. The higher factoring fee reduces a broker’s margins and overall profitability. Additionally, non-recourse factors scrutinize every customer and jobs often denying funding due to risk.

CONSIDERATIONS FOR FREIGHT BROKERS

This type of financing is limiting for scaling freight brokers looking to expand business. A non recourse factor screens the broker’s customers very thoroughly, and will factor loads only from customers who have impeccable credit. As brokers are not likely to work exclusively with credit- perfect customers, there is a good chance that the freight brokerage will have customers denied by the non-recourse factoring company.

Recourse Factoring

Similar to non-recourse, recourse factoring is a financing option that provides freight brokers with immediate payment for their invoices, improving cashflow and supporting business growth. However, the freight broker is responsible for any unpaid invoices.

BENEFITS:

Recourse factoring is less expensive than non-recourse factoring. Freight brokers only pay a percentage of a freight invoice total when they factor an invoice. This means that freight brokers can access the financing they need at a more affordable rate, which can help them scale their business. Additionally, recourse factoring streamlines invoicing and payments. This can help freight brokers reduce administrative workload and ensure that carriers are paid promptly, which can help them maintain strong relationships with their carriers.

DRAWBACKS

The downside to recourse factoring is that not all vendors accept recourse financing.This means that freight brokers need to carefully consider which partners they work with and ensure that they are willing to accept recourse factoring.Additionally, brokers are liable for non-paid invoices, which means that they need to keep an eye on collections and intervene when needed.

CONSIDERATIONS FOR FREIGHT BROKERS

For freight brokers, recourse factoring is often the most convenient and flexible way to maintain sufficient working capital, especially in times of economic upheaval.A full-service factor will enable the freight broker to keep up with carrier settlements and other expenses when business is scarce, and to manage the surge in payables when the economy rebounds. In addition, the best factoring companies will also handle back-office tasks, including payables and receivables management, collections, advances, and quick pay, freeing the brokerage owner and staff to focus on business development, carrier relations, and logistics operations.

Still have questions - Check out this deep dive on recourse vs Non-Recourse Factoring.

How to Choose a Factoring Partner

Freight brokers require a unique approach to factoring. The timeliness and consistency of cash flow is critical to the broker’s success, as brokers will be wary of taking on new business unless they have confidence in their ability to pay carriers promptly while continuing to cover labor and non-labor expenses for the business.

Here is what a freight broker should look for in a factoring partner:

There is one factoring company that offers all those benefits and more. Denim provides freight factoring and financial programs designed specifically for freight brokers.

Choose Denim as Your Back-Office Partner

• Apply online and set up your account. It’s easy, and it’s free.
• No personal credit check is required, just an MC number and broker authority
• Transparent pricing at a consistent rate per load, with no hidden fees
• Flexible financing — you choose which invoices to factor
• Free quick pay so you can pay carriers fast, either for free or for a convenience charge
• Back-office automation is simple. Denim handles payables, receivables, and collections
• Dedicated account manager is available for consultation and support.
• Cancel any time. No long-term contracts, no termination fees. You’re in charge.

To Factor or Not To Factor

Denim empowers brokers to decide for themselves whether or not to factor each load. Either way, you can take advantage of Denim’s Freight Payment System. SmartBrokers know not to waste time doing tedious data entry in multiple systems or updating carriers and payment status over the phone. That’s time better spent on parts of the business that will drive success, or better yet, extra time with friends & family (Check out how one broker has switched to a 4 day work week with the time saved from technology automations.). SmartBrokers also know when and how to manage risk with tier cash & assets, especially when it comes to financing their tendered freight.

Here is an example of the timing and cost of factoring an invoice with Denim’s Freight Payment System, alongs idean example of the same invoice processed as a non-factored payment.

This example is based on factoring an invoice of $1,500, where the broker receives a 17% gross margin. The first payment takes place within 24 hours of the carrier’s delivery and invoice using Denim’s QuickPay feature. Denim does not change any additional fees to make a factored payment, just the 3% factoring rate of $45 which is taken.

Without factoring, the broker receives the full margin amount, but may need to “float” the carrier payment as many invoices include net-30 or even net-45 payments. Denim’s Freight Payment System (FPS) handles the transaction for only $4 for the non-factored job, which the broker is responsible for at the time payment is made to the carrier.

CONCLUSION:

Grow Your Freight Brokerage with Denim

Set up your Denim account today. Even if you aren’t ready to factor any invoices now, you’ll be ready to growwhen the economy rebounds. Meanwhile, you can take advantage of Denim’s back office support. When you want to factor an invoice, submit it to Denim for a customer credit check. The vast majority of customers and invoices are approved right away.

Free setup. No long-term contracts.Cancel any time.

All you need is active freight brokerage authority, a validMC or DOT number, and a business bank account. The account is free, there is no long-term contract or cancellation fee, and no personal credit check. Call (855) 250-4142or fill out this account form to get started now.

The pandemic upended global supply chains, and carriers were forced to reduce capacity to survive. The economic recovery is now underway — but so is peak season. While shippers are eager to move massive amounts of inventory, carriers have yet to shake the lingering effects of COVID-19-induced slowdowns and labor reductions. Shipping demand is skyrocketing right as carriers are becoming more selective about the loads they’ll move.

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In the middle of this acute shipping crisis sit the brokers, who will lose out on revenue and miss new business opportunities if they can’t supply customers with trucking capacity.

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A single freight broker can’t fix all the industry’s problems. You can, however, meet shippers’ needs by increasing efficiency and streamlining operations. It all starts with financial agility, the ability to ensure you always have the money required to deliver world-class service to shippers and carriers alike.

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Get Carriers To Prioritize Your Freight

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Trucking capacity shortages were an issue even before the pandemic, and COVID-19 worsened the situation by spurring layoffs and early retirements. Economists now predict the U.S. supply chain will be short 100,000 drivers by 2023. Competition for carriers is fierce, but you don’t have to tie up all your time and effort in the battle. Instead, you can get carriers to come to you.

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Every freight broker knows the supply chain sector depends on relationships. Being a good customer gets you good service and repeat business. You can use this fact to your advantage.

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Shippers have a lot of inventory to move, but many are still reeling from the pandemic. As a result, these shippers are falling behind on their payments. If your brokerage always pays carriers promptly, then carriers will be eager to choose your freight over everyone else’s. Leveraging a financial platform with carrier QuickPay options, like Denim, allows you to pay carriers in as little as 24 hours. You’ll earn a reputation for reliable, on-time payment — and become a broker of choice for carriers.

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Of course, that’s easier said than done. When shippers pay late, freight brokers may suffer cash flow deficits. How do you pay carriers when shippers aren’t paying you? You could spend your own cash reserves as you wait for invoices to be fulfilled, but that can leave your brokerage financially insecure and unable to accept new business even as the market expands.

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This is where financial agility comes in. Some financial platforms and partners offer selective factoring, a service that allows you to turn unpaid invoices of your choosing into overnight payments. With factoring, you always have money to pay carriers regardless of your outstanding receivables. Shippers may have to delay their payments, but that won’t affect your ability to meet existing customer demand, solicit new business and become the broker that carriers prioritize above the rest.

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Boost Employee Productivity by Mitigating Financial Risk

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Disruptions to your cash flow don’t just jeopardize your relationships with carriers — they can also harm employee recruitment and retention when you need labor power the most. Peak season is an all-hands-on-deck moment, but when suppliers pay late, you might struggle to make payroll. That can lead to layoffs and turnover when you should be ramping up activity.

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To make matters worse, a late paycheck or round of staff reductions can leave a lasting mark on your brand in the talent market. Even in good times, you may find it harder to attract new hires.

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The good news is that labor issues are not expensive things to fix. The same kind of relationship dynamics that apply to carriers apply to workers. When you pay your staff members competitively and on time, they’ll be more satisfied and engaged at work. When they’re more satisfied and engaged, they’re more productive and less likely to make mistakes. Essentially, your workers will become more efficient, more effective and better able to meet peak season customer demand even when capacity is tight. 

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Ultimately, when you leverage financial tools such as factoring to gain consistent cash flow, you don’t just secure more carriers — you also get more out of your own staff members.

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Automate Back-Office Tasks So You Can Focus on Mission-Critical Work

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Keeping employees retained and maximally productive is only one part of the equation when it comes to meeting customer demand during peak season. You also need to ensure every team member focuses on mission-critical tasks such as new business development, optimally managing day-to-day logistics and building relationships with new and existing carriers. If your team members are bogged down with back-office administration, these crucial revenue-generating activities may fall by the wayside.

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This year, you may find it even more difficult to handle all the high-value tasks. Labor shortages aren’t limited to trucking, and your team may have some gaps. Additionally, the financial straits of shippers might mean your team has to spend more time processing invoices and chasing down payments.

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You can reorient your workers toward those mission-critical tasks by automating much of your back-office operation. A solution like Denim Payments can, for example, automate invoicing, taking this critical but menial task off your employees’ plates. Some financial platforms also offer managed collections, which means employees can spend less time hunting down receivables and more time securing capacity and delivering stellar service to shippers. Plus, automated invoicing and managed collections offer the added benefit of making sure your company gets paid. Combined with tools like factoring, these services give your freight brokerage financial security when it’s needed most.

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Winning Peak Season With Financial Agility

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Operational agility is more than just a buzzword. Even under the best economic circumstances, the most agile freight brokers see the most success during peak season. That’s because they can get creative and ensure optimized efficiency for shippers, carriers and employees alike.Achieving that kind of operational agility depends on achieving financial agility first. You can’t deliver streamlined service without the assets to support that service. Don’t let cash flow disruptions keep you from meeting peak season demand this year. Find a financial partner who can help ensure you always have the people, relationships and resources you need to thrive, regardless of what happens.

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If you’re interested in learning more about how Denim can help grow your credit and help build your business, we’d love to talk.

‍There are legal risks of not separating carrier and brokerage operations when both reside under the same roof.

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‍The main purpose of MAP-21 is to prohibit motor carriers from brokering freight, and brokers from providing motor carrier services. The intent is to clarify that motor carriers need a separate broker authority to LEGALLY broker freight. The sole purpose is to prevent carriers and brokers from illegally double brokering freight to unsafe carriers keeping them in business.

• 32915 – Requires anyone acting as a broker to register and obtain separate authority.-  A motor carrier may not broker transportation services unless the motor carrier has registered separately as a broker or forwarder.-  A motor carrier registered as a freight forwarder or broker may only provide transportation with vehicles owned by the carrier, or through interchange agreements (IF the originating carrier physically transports the shipment at some point and retains liability for the cargo and payment of the interchange carrier).-  A motor carrier may not arrange transportation unless the carrier has obtained separate registration as a forwarder or broker.
• 32916 – Requires the broker or forwarder to have an executive or officer with 3 years of experience in brokerage services, or provide the Secretary of Transportation with satisfactory evidence of the individuals’ knowledge.-  A broker may not provide transportation as a carrier unless it has registered separately as a carrier.
• 32918 – $75,000 bond requirement.
• 32919 – Unlawful brokerage activities.-  A person may provide brokerage services as a broker only if that person is registered and provided a satisfactory bond. Violation is a $10,000 fine and unlimited liability damages.-  Carriers may file an OP-1 to obtain broker authority, listing their DOT number, but leave the MC number blank, and the FMCSA will assign a separate MC registration number to the brokering authority at a later date for those who obtain carrier and broker authority under the same name.-  Those who choose to engage in brokering services without operating authority will be liable for penalties up to $10,000 and liable to pay valid claims to third parties regardless of the amount.

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Below is a general description of each section contained within this law: On September 5, 2013, the FMCSA issued Guidance on MAP-21 requirements related to registration and financial security for brokers.

1. Risk of $10,000 penalties – The FMCSA has increased the staff responsible for enforcing the MAP-21 Act. They are constantly monitoring training standards and verifying the $75,000 bond. With increased monitoring, the likelihood of being penalized with the $10,000 fine for not having separate brokerage registration increases.
2. Risk for accidents not caused by the brokering carrier – Without separate brokerage authority, a carrier opens itself up for liability claims and negligent hiring claims, without the protection associated with brokering. Without a separate brokerage authority, a carrier can be held liable for any accidents caused by the brokering carrier. 
3. Risk of unlimited liability for cargo damages – Carriers with separate brokerage authority are exempt from cargo liability under the Carmack Amendment.
4. Risk of non-coverage under insurance policies – If a carrier brokers or re-brokers loads but does not have separate brokerage authority, it is possible that a carrier’s liability insurance coverage may not provide coverage for brokering and any claimed loss, for either cargo or personal injury. Should the carrier fail to secure the correct liability insurance coverage, the brokering carrier could be held liable for any losses because it accepted responsibility for the shipment.

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To avoid putting your business at risk, it’s imperative, if you intend to have both a carrier and a brokerage authority, to keep the entities completely separate! Register for two separate MC Authorities, one as a brokerage and one as a carrier. If you’re interested in learning more about how Denim can help grow your credit and help build your business, we’d love to talk.

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The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. Information on this website may not constitute the most up-to-date legal or other information.