Transportation Intermediaries Association
Published in the Marketplace Digest May 14, 2024
Enhancing Credit Approval with Factoring Companies: A Guide for Freight Brokers (Part 1)

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Enhancing Credit Approval with Factoring Companies: A Guide for Freight Brokers (Part 1)

In the intricate landscape of freight brokerage, securing a reliable flow of credit stands as a cornerstone for operational success and growth. Navigating the path towards credit approval, particularly with factoring companies, requires a meticulous strategy. This article delves into the initial steps freight brokers can take to enhance their chances of a favorable credit outcome, focusing on practical measures that can set the groundwork for successful financial partnerships.

Ensure Accurate Factoring Company Information

One of the initial steps in fostering a positive credit relationship begins with the accurate boarding of carriers and ensuring their factoring company information is correct. This process is crucial for several reasons. First, it ensures that payments are directed to the correct entity, whether it’s the carrier directly or their factoring company. Accurate payment reduces the risk of financial disputes and enhances your reputation as a reliable broker.

Moreover, providing clear and timely remittance information is vital. Factoring companies value transparency and punctuality in transactions. By establishing a record of consistent and accurate payments, brokers can build trust with factoring companies in the market. This trust is foundational when seeking credit approval, as it demonstrates your company’s reliability and commitment to fulfilling financial obligations and clear and accurate communication.

Implement Quick Pay Options with Factoring Companies

The velocity of your payments to carriers and their factoring companies can significantly influence your creditworthiness. Whenever feasible, opt for quicker payment options. Faster payments are not only a sign of financial stability but also contribute positively to your credit profile. While small carriers might not report your payment history to credit agencies, most factoring companies report to business credit bureaus like Ansonia, Equifax, Cortera, and D&B.

If the financial bandwidth for 7-day payments is beyond reach, aim for Net15 terms as a minimum standard. Tools like HaulPay can be instrumental in facilitating faster payments without accruing debt. By utilizing financing solutions or digital wallet features for scheduled payments, you ensure timely transactions that reflect positively on your credit history and establish market consistency.

Establish Your Profiles with Credit Bureaus

Proactively establishing your presence with credit bureaus is a step that cannot be overlooked. Agencies like TransCredit offer services to kickstart your credit reporting, laying the groundwork for your business’s credit history. Early engagement with Dunn and Bradstreet to obtain a D&B number adds more legitimacy to your brokerage as well.

Having a recognized credit profile does more than just put your name on the map; it provides a foundation upon which credit decisions are made. Factoring companies and lenders heavily rely on this data to assess creditworthiness. By taking charge of your credit profile early, you position your brokerage favorably in the eyes of potential creditors and start to build trust.

Leverage Other Validation to Stand Out

For new freight brokers, the absence of a lengthy credit history can be a stumbling block. However, other elements can be leveraged to negotiate with factoring companies. For instance, possessing a larger surety bond than your estimated monthly invoice amount during the initial months can serve as a significant negotiating tool. This approach signals to the factoring company that you’re a lower-risk partner, potentially easing the credit approval process.

Negotiating with several factoring companies by highlighting such strengths can pave the way for accumulating reported credit history. This strategy is particularly effective for new brokers seeking to establish themselves in a competitive market. Think about what would make you more comfortable extending credit to a new shipper. Put yourself in the factor’s shoes. Get creative.

Ensure Multiple Parties Report Positive Credit

A broad base of positive credit reporting can dramatically enhance your creditworthiness. Aim to implement payment practices such as faster than standard term pay or consistent on-time payments within 30 days to your carrier’s factoring companies. Maintaining such practices for the first 3-6 months can accelerate the accumulation of positive credit reporting.

This concerted effort to establish a solid credit foundation involves not just timely payments but also building a portfolio of positive credit experiences reported by multiple parties. Such a strategy underscores your reliability and financial health to factoring companies and financial institutions.

Navigating the complexities of credit approval and new credit establishment with factoring companies demands a multifaceted approach from freight brokers. By ensuring accurate carrier information, implementing quick pay options, proactively establishing credit profiles, leveraging negotiating tools like larger more robust surety bonds, and fostering a broad base of positive credit reporting, brokers can significantly enhance their chances of successful credit outcomes. These initial steps lay the groundwork for building a robust financial foundation that supports growth and operational efficiency in the competitive freight brokerage industry.

Learn more about how HaulPay can help address most of these issues and how the TIA’s bond program is one of the most well respected in the industry.

Stay tuned for Part 2, where we will explore additional strategies and insights to further improve your brokerage’s creditworthiness and foster lasting financial partnerships.


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