Freight Brokers: All About the Relationships

Freight Brokers

Trucking is big business in the United States, and growing bigger. In 2014, some 7.3 million people were employed in jobs related to trucking activities (excluding the self-employed) according to American Trucking Associations, the industry's leading advocacy group since 1933. In 2015, 3.5 million were truck drivers, up by 100,000 from 2014. Yet the number of freight brokerages — the industry's matchmakers who connect shippers to the right drivers, equipment, locations, and dates — remains just a fraction of the big picture at fewer than 16,000.

What do freight brokers do? Sometimes called third-party logistics firms, freight brokers contract with motor carriers to move freight for their shipping customers, which could be farms, factories, distributors, and other producers and purveyors of goods. Brokers are the third party that negotiates the time and space continuum and gets freight where it needs to be.

Most freight brokers turn to invoice factoring to address their greatest challenge.

Interstate Capital

Giant publicly traded asset-based freight brokerages run their own fleets and provide comprehensive supply chain logistics solutions ranging from just-in-time storage and delivery to international customs and transfers. These brokerages, with their deep pockets and Fortune 500 customers, run like any other corporation. However, by far the majority of the country's 15,000-plus freight brokerages are small businesses. A surprising number of those are family-owned. Whether these are older, third-generation companies or new "mom-and-pop" startups, freight brokers share common financial challenges.

Most freight brokers turn to invoice factoring to address their greatest challenge: maintaining a steady cash flow and paying drivers while waiting to receive payment from shippers for delivered loads. In addition, selling their invoices to a factoring company and getting paid on delivery helps brokers retain good drivers with quick-pay options, an increasingly vital part of the transaction during the trucking industry's growing driver shortage crisis.

Freight brokering is a very much a relationship-driven field and smaller brokerages live and die based on the quality of their relationships in the industry. While factoring fills the freight broker's need for reliable working capital, it also helps freight brokers with their most critical relationships.

A case in point is the experience of Ellen Brody, a savvy businesswoman with an entrepreneurial bent, and her husband, Bill (names have been changed). They launched their own freight brokerage, Mountain View Logistics, in New Mexico five years ago. Mountain View, an independent woman-owned freight brokerage with a small staff of six, is typical of many of today's freight logistics firms.

Bill worked with logistics and distribution while serving in the Army and started knocking on warehouse doors, looking for similar work as soon as he walked off the army base. After working his way up through the ranks at a large family-owned brokerage, he and Ellen decided to open their own brokerage. For their early operating funds, they began factoring their accounts receivable with a company that specialized in freight bill factoring and that had provided funds for Bill's former employer.

Over the years, Mountain View Logistics has gone through changes common to many brokers, including weathering up-and-down trucking industry cycles, losing a major customer's business when that company transitioned to using an in-house brokerage and working to renew contracts after long-time decision makers were replaced during corporate acquisitions and consolidation.

Yet, two parts of the business haven't changed: the couple's vision for the kind of company they want to run and their factoring company. Through hard work, conservative spending, and bottom-line vigilance, Ellen and Bill have seen steady growth. They've also seen how factoring their invoices helps them strengthen their two most important relationships.

Strong relationships with motor carriers

The couple's commitment to the owner-operators and fleet owners working with them is genuine. They truly like and respect the motor carriers in their extensive networks and want them to succeed. Some of these motor carriers have been hauling loads for Mountain View since the brokerage opened. Helping cement these relationships is the fact that from its first day, Mountain View consistently paid carriers promptly, thanks to their factoring company's 100 percent advances upon loading.

Strong relationships with customers

Often a brokerage's most highly valued, highest volume customers are the ones that have negotiated long payment terms. These delayed payments create significant challenges in a broker's operations, and that's where freight bill factoring comes in to bridge the gap between delivering loads and getting paid for them.

The other payment challenge is getting customers to pay on time all the time. When this happens, Ellen and Bill like that the factoring company contacts their shipper customers about their payments, rather than them. Turning over the time-consuming and often dreaded and postponed collections chores to a third party take away the disagreeable conversations. No more do they face the awkward task of asking a customer for more business and asking for payment at the same time. The couple says that this separation between collections and sales definitely helps Mountain View's customer relationships.

By factoring to pay motor carriers promptly and delegating collections chores to their factoring company, the Brodys continue to enjoy highly positive relationships with both carriers and customers. Interstate Capital, a leader in the invoice factoring industry, has worked with Mountain View Logistics since the freight brokerage opened and continues to partner with them today. With its low factoring rates and high advances, Interstate Capital — — has helped more than 10,000 small and medium-sized companies improve their cash flow and expand their operations.

Source: Interstate Capital

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