Insider Secrets to Successful Freight Brokering

Freight Broker Cash Management

Every business needs to have top-notch cash management skills or they lose. The loss could be loss of potential income or the loss could mean going under.

Freight brokering is a little different than other service businesses. Normally, you will pay your carriers before you get paid from your customer. At least, this is the routine for beginners.

Here is what you want to do to control your cash:

1. As you are speaking with potential customers, ask them how quickly they normally pay freight brokers; then, make a note of this,

2. If and when you do get loads from them, run a credit check first so you know what to expect before you go any further,

3. Record the actual number of days that it takes to receive money from the customer; then compare this to what they told you and with what you find out on the credit check;

4. On your invoice terms, enter "Due upon receipt", or "Net 10 days"

5. Refuse to take loads from a customer if they are paying you later than 40 days,

6. If the customer is behind on some payments, make them pay up 100% before you take another load,

7. Require advance payments for those customers who are slow payers.                                                                                                                                    
Is all of this easy to do? Not always, but you are better off losing some bad paying customers rather having them mess with your cash flow.

As anxious as you are to find and work with customers, you have got to be a pit bull at times to manage your cash.

How Quickly Will You Get Paid?

Cash management skills are extremely important for freight brokers maybe moreso than for most other businesses. This is because you normally pay the truck before you collect from your customer. Thus, a gap exists between the time you make pay outs and the time you receive cash.

If this gap widens and snow balls out of control, good luck to you.

Here are the some steps to take that will help you get off on the right foot. One, as you are calling on prospective customers, ask the shipping manager how quickly does his or her company normally pay freight brokers. Two, write it down.

Then three, If you do work with that shipper, compare what they told you with what actually takes place. If there is any big discrepancy, get back with the shipping manager.

No matter how badly you want to start working or continue working with a customer, if they are sitting on your money, you might have to fire them.

There are other precautions and techniques for managing your cash. I'll bring these up in other blog posts.

 

How to Get Cash Fast

Cash management is extremely important in any business but especially so for freight brokers. In this business, you want to pay the truck quicker rather than later. You will build a more loyal and reliable base of carriers if you do this.

You normally will wait 1-4 weeks to get your money from the shipper after you pay the truck. So, you have a gap to fill until you get paid. What are your options?

The ideal thing is to have a cushion of money to pay your trucks on time. And, you do NOT need buku thousands of dollars for this especially if you are starting from scratch. For those without a cushion, there are "factors". They will buy your invoice at a discount and advance the money to you quickly.

Factors are all different in the way they operate. It is hard to do an "apples to apples" comparison (I tried it). Nevertheless, you will want to talk to a number of them. The first four questions you would ask are:

1. Do you work with freight brokers? (Some don't)
2. Do you have a monthly minimum?
3. Do you have non-recourse advances?
4. Do you require every invoice from a particular company to be run through your system or can I pick and choose which invoice I want to factor?

So, if you are strapped for cash, consider factoring your invoices to get you started. Believe me, the time is ripe for some of you to get going here, one way or the other. Don't be left with the crumbs after the economic turnaround takes on more strength.

Personal Financial Planning

With the economy the way it is, many people are looking for ways to stay afloat, to survive or just to make sure they are on track. I have developed a 22 minute video and some spreadsheets to help you do some projections on your cash flow.

You can save these spreadsheets with a new file name and then enter your own financial data. It will be data like your monthly take home pay from whatever sources you have. It will be data for your household expenses and my listing is comprehensive. 

You can learn how the numerous household expenses are summarized, giving you a benchmark to compare to what other experts are saying you should be spending relative to you income.

There is one tool that is included in these spreadsheets that is very powerful and it is most likely you have not encountered it anywhere else. It is a tool that business owners use but it can be applied to your personal situation.

Go here now to order this video and the spreadsheets: http://atexfrei.ipower.com/purchaseFBTrngCashFlowProj.html

It's a tiny sum of $10 and you will find this information very helpful.

How Do You Collect Your Money? - Part II

In Part I, I mentioned the importance of knowing beforehand what you can expect as far as receiving money from your customers. How quickly are you going to get paid?

People and clients ask me if they are going to get paid or will they run across shippers who won't pay them. I tell them that, yes, most likely you will get paid. That's not the problem. The problem is not knowing how quickly the shipper is going to make payment and just hoping you will get paid.

It is my opinion that more freight brokers go out of business because they let their accounts receivable get out of hand as compared to those who don't get paid at all.

As a business owner, YOU are in control and if you are not, you need to rethink your policy and revamp your habits. It is hard to turn down business especially in this economy. However, if your customer is sitting on YOUR money for 60 or 90 days or longer. It is almost as bad as not getting paid.

Having said this, be sure to use a credit service to run a credit check. There are several that focus on the freight and transportation industries.

Don't waste your time sending credit applications. You will most likely be tied up making a lot of phone calls to people who really don't want to give you any information.

If you can't find a particular customer in a database, call the accounting department. Explain that you are just a small business person and you need to get paid within a certain amount of time (you set your terms - whatever they might be). Be friendly but be firm and know what you want.

Don't let your accounts receivable be the most neglected item in your freight broker operations. You won't survive until you stay on top of it and take control.

It all starts with creating a credit policy, putting it in writing and then following it with very strict adherence.

What About Financing Sources for Freight Brokering?

Actually, getting a traditional bank loan for a freight broker start up might be much easier than most other types of business enterprises. For those businesses that have a retail store front, equipment or inventory, the banks are always looking for a lot of collateral. I used to joke and say they will take your child or favorite hunting dog for collateral if they can.

But, if things go bad, banks really don't want to get stuck with inventory, equipment or even a whining kid or a dog that barks all night. So, I have a suggestion for you IF you are searching for some start up funds.

There is a relatively new type of lending called "Peer to Peer". This method involves individuals who put up their money for other individuals. It is not a haven for anyone with bad credit - but it may be more convenient than a bank.

Now, I am only suggesting that you research this alternative. I have NO personal experience with "P to P" lending. So, I cannot tell you anything more than to say - do some research. "Google it" on the Internet and see what you come up with. There are 3-5 companies that are administering these loans and it may be just what you need.

Go to www.ezines.com and do a search on "peer to peer lending". You will find a number of articles there.

You only need a cushion of $3K-$15K to get started as a freight broker. This will allow you to pay your trucks on time. I have heard stories of needing $50K-$300K. This is malarky unless you are intending to move 25 to 150 loads or so right off the bat (a feat which almost no newbie will be doing).

Even if you don't have a cushion to pay your trucks on time, you can use a factor to get started. They will buy your accounts receivable at a discount. We go into more detail on this in our training.

One final comment - you really don't want to start out with too much money. I know that sounds counter intuitive, but it's the truth.

Keep your eye out for another blog post here and I'll explain why you don't want to start out with too much money.