Challenges for Freight Brokers
1.Surety bonds and insurance
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.
Surety bonds can be obtained from an insurance company, but brokers must pay premiums. Strong business credit scores and ratings can help brokers negotiate lower premiums by helping show they are a low-risk company.
2.Liability
Brokers may be liable for damages if the shipment is damaged or there is an accident, so they typically have a strict qualification process for carriers.
Brokers can check the business credit files of other companies to help vet and qualify new carriers. A business credit file contains information on suits, liens, judgments, and payment history. Predictive scores and ratings can help brokers decide if a carrier is likely to pay late or go out of business, so they can choose the best companies to contract with.
3.Cash flow
Brokers face very little in the way of startup costs, but they usually pay carriers right away and then bill shippers. This can lead to cash flow and funding problems for brokers.
Lines of credit can create financial flexibility while waiting for customers to pay. A strong business credit file can help a broker get a line of credit from a bank, with more favorable terms.
Brokers can also check a shipper’s business credit file prior to approving their credit terms to make sure the shipper isn’t too high risk.
4.Competition
Freight brokering is an extremely competitive industry, and brokers will need to stand out as well as prove they are the best choice for the job. By building and maintaining a strong business credit file, brokers can show they’re low risk and may be able to negotiate higher prices because they’re more reliable than the competition.
For the trucking industry, business credit can be an invaluable asset. Whether it’s carriers, forwarders, freight brokers, or trucking as a whole, strong business credit can open new doors, help win more business, keep costs low, and help business run more smoothly.
Building business credit starts by updating your company information in Company Update for free. Filling out your “Super 7” information is the first step in completing your business credit file. If you don’t yet have a Dun & Bradstreet D-U-N-S®Number , you can apply for one using Company Update as well. D-U-N-S Numbers are also free, so get yours today
