For freight brokers, clients that have an unreliable history or pose a threat to damaging the broker credit standing must be addressed immediately. Understanding the different ways to handle such clients and how to manage freight finance can help improve cash flow, shorten the payment clock, and reduce clients with high credit risk. Slow and unreliable clients typically try to extend the payment period, and in worst cases may never pay. If a company does work with an unreliable client, make sure to handle the payment issues quickly rather than later. Handling issues immediately can save profits.
The Problem of High Credit Risk for Brokerages
Running a credit check on clients, including long-term customers, can help brokers avoid unreliable clients. Unfortunately, the high demand for services means many shippers will simply look for another carrier if you turn them down due to prior transgressions. As a result, brokerages must walk a thin line when trying to avoid upsetting shipper clients with faster-than-usual payment expectations. However, that doesn’t mean brokerages have to assume the risk completely, and that is why many companies have started thinking outside of the box in terms of mitigating the risks inherent with payment delays.
For example,a common financial option to mitigate credit risk is a credit check, which can provide information such as payment trends, past payment records, prior bankruptcies, and any legal issues the company faces. To preserve the broker’s credit standing and worry less about clients not paying, non-recourse freight factoring can help. when the client fails to pay the invoice. The factoring company will lose out rather than the broker, which can relieve the stress from working with unreliable clients. If issues continue to happen, brokers must understand the damage high credit risk clients do for the business and cash flow.
Faster Payments Lower Risk
Brokers can use factoring services to offer carriers lower-cost options to receive payment quicker. Some companies worry about how much freight companies charge paying too much for the service. When looking at the fees ranging from 1.5% to 5% from companies, MH&L states, “While 1.5% doesn’t sound like much, if you use factoring all the time, that 1.5% can represent an 18% annual interest cost. For example, if you factor $100,000 every month, then that is $1,500 a month in factoring fees. If you choose to do this monthly for a year, that is $18,000 in factoring fees to get $100,000 up front, an implied interest rate of 18%.” For the benefits received through freight finance, a small fee definitely is worth the outcome of improved cash flows.
Added Ways Brokerages Can Lower Credit Risk
Any company wants to avoid issues with broker credit or credit in general. A beneficial way to do this and provide other positive circumstances includes freight factoring. Factoring can provide logistics and technology to help look at data and analyze efficiencies while streamlining the process on a platform. Besides using flexible freight factoring to receive quicker payment without the credit risk, other options include:
- Communicate clearly and concisely: Have a clear communication and understanding of expectations with companies to ensure understanding of payment times.
- Know which shippers pay on time and in full: Having the knowledge of which shippers could cause a credit risk can allow brokers to avoid working with them.
- Use data to manage freight finance goals: Tracking data across your shipper base, such as usual payment windows and the percent of on-time, in-full payments, will help you manage your freight finance needs too.
- Shorten the payment clock with reliable options: Reliable options such as freight factoring can provide quicker payment for brokers and carriers.
- Choose a quality factoring solution like HaulPay: HaulPay can replace manual payments, eliminate risk, and help manage credit.
Reduce Your Credit Risk With ComFreight’s HaulPay
No broker or carrier wants to worry about unreliable customers or credit risk if payments do not happen on time or in some cases, at all. There will always be some companies that have poor credit or might put the company at risk. However, using the right freight finance tools can provide benefits like help improve cash flow while reducing the payment clock. For any problems with payment, ComFreight’s HaulPay is the solution. To see the benefits, request a demo to see how the HaulPlay platform works and say goodbye to credit risks.
