As intermediaries between carriers and shippers, freight brokers face distinctive business challenges, from managing cash flow to learning about the credibility of companies they work with. A freight broker line of credit can assist brokerages in managing financial stresses, overcoming challenges, and understanding the trustworthiness of potential clients.

Primary Challenges for Freight Brokers

Why is a line of credit necessary for freight brokers? Business credit for trucking is essential to address challenges common to most freight brokerages, including surety bonds, insurance, competition, liability, and cash flow.

1. Surety Bonds

By definition, “a surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee.)”

Every freight broker is required to obtain a surety bond from the government to operate legitimately in the United States. This agreement between the broker and the government is a guarantee that the freight broker will meet all contracts with shippers and carriers.

Freight brokers are required to obtain a $75,000 surety bond. If a freight broker does not live up to its contracts with a shipper or a carrier, the surety bond assures shippers and carriers that the broker has the cash or assets to cover at least the amount of the bond.

2. Insurance

Freight brokers can procure surety bonds from insurance companies. However, brokers are required to pay premiums. To lower premiums, freight brokers can demonstrate that their company is low-risk and reliable with good credit scores.

3. Competition

The freight broker industry is extremely competitive. Once again, low-risk engagements and reliability help freight brokers stand out amongst the competition.

4. Liability

Although not always the case, freight brokers are sometimes liable for shipment or equipment damages during travel. To limit liability, freight brokers should evaluate the dependability and credibility of potential carriers before accepting new engagements.

5. Cash Flow

Financial strain is one of the most significant challenges faced by freight brokers, specifically consistent cash flow. While starting a freight broker business is relatively inexpensive, financial challenges arise quickly. Because carriers are often paid before shippers are billed, cash flow can become clogged or entirely depleted. As the intermediary between shippers and carriers, transportation brokers are often forced to satisfy and balance both parties involved before acknowledging personal cash flow issues.

However, unacknowledged cash flow issues eventually cripple a company. Amid balancing such significant challenges, freight brokers may look for additional financial assistance to promote business growth and livelihood. Freight factoring is one such option.

Benefits of a Freight Broker Credit

1. Surety Bonds & Insurance

As mentioned, strong business credit scores can help freight brokers appear low-risk, credible, and reliable to insurance companies, often resulting in leverage to negotiate lower premiums.

2. Competition

Again, freight brokering is a competitive space, and strong business credit will make your company stand out among the rest. Additionally, business credit may allow your freight brokerage to negotiate for higher prices. Shippers and carriers appreciate low-risk, reliable brokers.

3. Liability

One business credit service explores the emphasis placed on credibility in the freight brokerage industry for both shippers and carriers.

• Shippers “will pull credit because they’re trusting the broker with their load. The brokers credit will offer detailed information about payment patterns and financial responsibility (or lack thereof).”
• On the other hand, carriers “will pull the brokers credit because they want to make sure there is a consistent history of payments on time. Carriers need to be able to depend on timely payments from the broker to fund their operations and turn a profit.”

Likewise, as a broker, you should also check business credit files of potential shippers and carriers. As mentioned, business credit files help you choose the best companies to engage with, reducing liability risk.

4. Cash Flow

A freight factoring line of credit for brokers directly addresses cash flow issues. In the freight factoring process, the factor purchases invoices directly from the broker, providing the brokerage with immediate cash needed to pay carriers. The factor then waits to receive payment for the invoice, instead of the freight brokerage. Factoring provides companies with cash needed to continue business on slow-paying invoices.

Factoring Line of Credit vs Bank Line of Credit

When considering financial assistance, freight brokers may consider acquiring a bank line of credit in comparison to a factoring-based line of credit. While a bank line of credit may be viable for several issues, consider a few potential downsides to pursuing this form of financial assistance as a freight broker:

1. A bank line of credit can add to the debt already carried by the broker. As with any business, avoiding debt when possible is best.

2. Additionally, a bank line of credit has its limits. Eventually, a maximum borrowing limit will be met, stopping cash flow. Once the broker can no longer rely on the bank line of credit, he/she is forced to rely on shippers once more, often an unreliable source of cash flow.

Advanced Commercial Capital

At Advanced Commercial Capital, we protect our clients from unpaid freight invoices due to fraud, bankruptcy, or delinquency – without any surprises. To learn more about the ins-and-outs of a freight factoring line of credit, reach out to our team at 855.465.4655 or via our online contact form!

All small businesses experience both financial plateaus and expansive growth, each phase proving to be a challenge. Small business owners may struggle to stay afloat during scarcity but fight to scale extreme growth during unprecedented expansion. In both cases, business owners may look to financial services for assistance and direction.

Trucking companies looking to tackle new opportunities or struggling to maintain profitability may look to freight factoring for financial assistance. In the content below, we discuss factoring as a financial service, recourse vs non recourse factoring, and how to determine if non recourse freight factoring is right for the long-term growth of your company.

What is Freight Factoring?

Freight factoring is a financial service whereby a factoring organization purchases invoices from a business at a discount from the face value of the invoice. The organization purchasing the invoices is called the “factor,” while the discount amount is coined the “factoring fee.” The factoring company then waits to get paid for the invoice.

How Does Freight Factoring Benefit Trucking Companies?

Freight factoring encourages cash flow. Once the factor purchases the invoice, the trucking company receives enough capital to begin hauling another load. As a result, the trucking company no longer needs to wait for the client to pay the invoice – which are oftentimes delayed – to seize available opportunities and continue company growth. Therefore, with freight factoring, unpaid invoices become immediate cash.

Factoring receivables allows your trucking company to cover daily expenses, such as repairs or fleet maintenance, fuel, or payroll, and plan for long-term success without going into debt or diluting equity ownership in your company.

What is Recourse?

Although subjective in definition between varying organizations, most factoring companies agree that the term “recourse” defines who holds the liability and the action that occurs if the factoring client’s customer (or account debtor) does not pay the debt.

For example, if a freight factoring business purchases a discounted invoice from a trucking company in need of cash and the trucking company’s client never pays the invoice, recourse is the resulting action. According to the recourse factoring agreement, the factoring business is entitled to get paid by the trucker, and the trucking company is required to repurchase the invoice from the factoring company.

Some factoring companies allow recourse to occur by providing another invoice as repayment or simply removing money from a reserve account. Regardless, the trucking company is ultimately held responsible for paying the invoice amount in full.

Benefits of Recourse Factoring

Recourse factoring offers significant benefits for small trucking businesses by providing immediate cash flow from unpaid invoices. This financial solution allows truckers to access working capital without waiting for customer payments, ensuring they can cover expenses such as fuel, maintenance, and payroll. By converting receivables into cash quickly, recourse factoring helps small trucking companies maintain smooth operations and seize new opportunities without the stress of delayed payments. Additionally, it simplifies cash flow management, enabling business owners to focus on growth and customer service

What is Non Recourse Freight Factoring?

Non recourse freight factoring is another popular factoring option. Non recourse factoring is a type of financial assistance where the factor bears all collection risk on purchased invoices. Thus, if the account debtor does not pay his or her invoice, the trucking company is not held responsible to pay the invoice. In fact, the factor cannot demand payment on any purchased invoices if payment is not received due to credit reasons.

Benefits of Non Recourse Factoring

Nonrecourse factoring provides invaluable benefits to businesses by offering immediate cash flow while also protecting against the risk of non-payment. Unlike recourse factoring, where businesses must repay the advance if the customer defaults, nonrecourse factoring shifts this risk to the factoring company. This financial solution ensures that businesses can maintain steady cash flow and cover essential expenses without the burden of potential bad debt. By mitigating credit risk, nonrecourse factoring allows business owners to focus on growth and operations with greater peace of mind.

Non Recourse vs Recourse Factoring

As discussed, the primary difference between non recourse and recourse factoring is the responsibility of the trucking company to pay recourse. The use of reserve accounts is another distinction. Recourse factoring will collect a reserve account in the event that the account debtor does not pay. As mentioned, the factor may withdraw money from the reserve if an invoice is left unpaid.

However, non recourse factoring does not incorporate a reserve because it is not necessary. Alternatively, a refund is not demanded if account debtors cannot pay their bills.

When is Non Recourse Right for Your Trucking Company?

Evaluating whether non recourse freight factoring is right for your trucking company begins with answering a few questions. If your trucking company is currently experiencing one of the following scenarios, non recourse freight factoring may be an ideal course of action for your organization.

Are you a startup trucking company in need of immediate cash?

Non recourse factoring can be an excellent opportunity for startup trucking companies to front the day-to-day expenses of managing a business. Every small business startup is a financial investment, and non recourse factoring is a good avenue to begin purchasing a fleet, hiring drivers, and completing jobs.

Are you an established trucking company experiencing extreme economic difficulty?

In times of economic distress, non recourse factoring can save a trucking company! In some situations, invoice factoring may be the only avenue of cash available to a trucking company, allowing it to stay afloat and prepare in advance for the economy to turn around.

Have you inquired about a traditional bank loan, but your bank is not willing to lend?

The ability to qualify for factoring services is primarily based on the creditworthiness of your customers – not you. Thus, trucking companies have a better chance of receiving financial assistance from a factoring company than a bank, especially if the company has not had enough time to build substantial creditworthiness. Additionally, factoring companies are generally much quicker during setup than applying and getting approved for a bank loan, allowing for immediate cash flow.

Do you spend more time chasing past-due receivables than performing jobs?

Time spent chasing past-due receivables can significantly stunt company growth! When opportunities for expansion present themselves, your company should be positioned to seize the opportunity without feeling burdened by unpaid invoices.

Do you find yourself feeling at-risk of clients paying late or not paying at all?

If you find your company drowning when a client pays late (if at all), non recourse factoring may be the perfect solution to achieve a greater level of business stability. Freed from managing operations at the whim of account debtors, you may be comfortable to invest in business expansion and long-term success.

Find the Right Freight Factoring Program at Advanced Commercial Capital

At Advanced Commercial Capital, our non recourse freight factoring program is one-of-a-kind. We charge no setup fees, offer low, competitive rates, and never force clients into long-term contracts. We are dedicated to providing the highest quality factoring services for as long as the financing solution is best for your trucking company!

If you have any questions about how non recourse freight factoring can benefit your company, please feel free to reach out at 855.465.4655 or via our online contact form today!

During times of unprecedented economic turmoil, the chances of corporate endurance or success can appear slim and dismal. As a small or mid-sized trucking company, navigating complex economic distress may feel inundating.

However, survival is possible. In the content below, we offer practical advice on maintaining business health during economic crises from advanced preparation to non-recourse factoring opportunities.

How a Trucking Company Can Survive Economic Turmoil

1. If possible, prepare for economic crises in advance.

Unfortunately, most economic disasters are undetectable from miles away, leaving individuals, businesses, and governments unprepared. However, some level of consistent planning and forethought is required to respond appropriately when unfortunate economic turmoil arrives.
Below are several actionable insights and strategies to help you prepare in advance.

Evaluate your company’s financial health often.

Understanding where your trucking company stands financially will allow you to make informed, quick decisions when needed.

Identify your financial cushion.

Identify areas within your trucking company that may provide a financial cushion should a crisis occur. Do you have room to give, if necessary?

Seek to grow during profitable times.

Expand your services and geographic expertise whenever possible, performing research into stable markets that remain constant during unstable times.

Reduce the possibility of crippling debt.

One simple way to mitigate future expenses is through commercial truck maintenance. Performing regular upkeep on your fleet reduces the possibility of unexpected breakdown and expensive repair. If you own old and unreliable equipment, consider replacing it during positive economic conditions.

Finally, make sure you are aware of current financial standings with all creditors, lenders, and debtors. Check in often.

Analyze the health of your current alliances.

Are relations with your partners, clients, staff, and technicians strong? Developing and fortifying a community of trust and transparency can help your trucking company maintain valuable clients and staff during economic turmoil.

Unfortunately, not every trucking company is aptly prepared for economic distress. The day-to-day challenges of running a business are draining – proactively preparing for disaster is not often on the to-do list. If this is the case, there is still hope for your trucking company in times of unexpected hardship!

2. Save money wherever possible.

Saving money begins with accurately assessing costs. Micro-manage spending. For example, do you know your accurate cost-per-mile? Rudimentary calculation may seem sufficient for times of plenty, but economic distress demands a precise calculation. If utilizing a tracker, be sure to update it every week, per vehicle and driver.

Assess your cost-per-mile.

Assessing your cost-per-mile involves understanding all fixed and variable costs. Your fixed costs may include equipment, collision/comp insurance, permits, health insurance, an office lease, etc. Regardless of how many miles are driven, these costs remain present and reoccurring. Variable costs depend on frequency and volume of usage. These costs include tires, fuel price fluctuations, taxes, lodging, vehicle maintenance, equipment repairs, etc. Comprehending an accurate cost-per-mile involves understanding how overhead costs effect profit.

Implement a pay-for-performance plan.

Consider implementing a pay-for-performance plan for employees. Pay-for-performance plans incentivize drivers to go above and beyond while being appropriately, competitively compensated.

Forbes explains pay-for-performance plans well:

Pay-For-Performance is a way of saying ‘People should get a reasonable salary, and the preponderance of what they can earn should be based on the productivity and results of their own role, along with the overall results of the organization.’ A pay-for-performance plan for your drivers should not be tied to safety or on-time deliveries, that is their job! Driver incentives should be customized to each driver and tied to profit. The driver is the profit center, and based on what that driver produces, above and beyond some standard that you set, the profit is shared with them in some pre-agreed formula.

3. Explore new trucking opportunities.

New opportunities may come in the form of unfamiliar territory. For example, if your trucking business is accustomed to extensive, cross-country trips, yet – in economic turmoil – shorter hauls are more available and lucrative, adapting to the current need and available market. The opposite may be true as well. Regardless of the specific circumstance, adaption during economic distress is often necessary to maintain business health.

4. Take it slow and try to maintain financial stability.

In times of uncertainty and unprecedented distress, our gut response is often panic. As a business owner, panic is often dangerous. Therefore, evaluate your financial situation and ensure your personal finances are in order before making hasty decisions.
One major financial area of evaluation is cash flow. How will you work to keep revenue coming in? Many truck drivers turn to non-recourse freight factoring for survival during times of economic distress.

5. Protect your cash flow with non-recourse factoring.

Trucking companies are more than aware of limited cash flow throughout tough economic conditions. The risk of simply not getting paid increases. Non-recourse factoring can be a trucker’s saving grace during times of uncertain cash flow.

Ultimately, non-recourse freight factoring protects trucking companies from falling into debt if a client does not pay an invoice. When a trucking company is trying to navigate economic turmoil, the risk of clients failing to pay invoices on time or at all can be destructive.

Why choose non-recourse factoring over recourse factoring?

When working with a recourse factoring business, trucking companies are still responsible for the invoice if the client fails to pay in full. Non-recourse factoring completely protects the trucking company from unpaid invoices. Within a non-recourse factoring agreement, the trucking company is not legally responsible to reimburse the bill if the client does not pay – the factoring company accepts the risk.

Prepare for Economic Changes with Advanced Commercial Capital

Advanced Commercial Capital offers a fixed-rate, non-recourse freight factoring program, one of the most popular in the industry. The program is excellent for startup trucking companies – or companies in need of assistance during unprecedented economic distress.

Our non-recourse freight factoring program gives you peace of mind knowing that you will never be responsible to buy back uncollected invoices, and your rate will never change. Furthermore, we do not lock trucking companies into long-term contracts. We will work hard every day to earn your business – and you can choose a different route as needed.

For more information about our non-recourse factoring program, feel free to reach out at 855.465.4655 or via our online contact form.

We look forward to working with you through difficult economic circumstances.