Articles Category: Credit Reporting

Tips to Avoid Fraud in the Supply Chain

Freight brokers play a crucial role in the transportation industry. They act as intermediaries between shippers and carriers, helping to match cargo with appropriate carriers, negotiate rates, and ensure timely delivery. However, one of the biggest challenges faced by freight brokers is the risk of double-brokering.

What is Double-Brokering?

Double-brokering is a practice where a carrier accepts a shipment from a broker and then subsequently tenders the same shipment to another carrier for transport. This means that the carrier is essentially acting as a middleman and profiting off the work of another carrier, without doing any of the actual transportation work. This practice is unethical because the carrier is misrepresenting itself as the actual carrier of the goods, when in reality they are acting as a broker.

 

Why is Double-Brokering a Problem?

Double-brokering is a problem for a number of reasons. First and foremost, it is illegal. The Federal Motor Carrier Safety Administration (FMCSA) prohibits carriers from brokering loads without first obtaining a brokerage license. Carriers that engage in double-brokering are essentially acting as unlicensed brokers, which is a violation of federal law and subject to fines.

Secondly, double-brokering can create a number of issues for the parties involved. The carrier that actually transports the goods is most likely not aware that the shipment has been double-brokered and did not agree to the terms and conditions of the initial agreement between the broker and the originally contracted carrier. This can lead to disputes over payment & liability amongst other issues.

Additionally, double-brokering can create a number of logistical challenges. If the carrier that actually transports the goods experiences delays or other issues, it can impact the delivery schedule and create additional costs for the shipper.

 

How Can You Avoid Tendering Loads to Carriers Who May Double-Broker?

While policing double-brokering is a shared responsibility of both freight brokers and carriers, in this article we will discuss the steps brokers can take to avoid tendering loads to carriers who may double-broker their freight. Here are some best practices that brokers can follow:

  1. Conduct thorough carrier screenings

One of the best ways to avoid double-brokering is to conduct through carrier screenings. Brokers should verify that carriers have the necessary licenses and insurance, and should also check their safety ratings, inspection reports, credit ratings and other key metrics. By conducting thorough screenings, brokers can ensure that they are only working with reputable carriers that are qualified to transport their clients’ goods.

  1. Work with carriers who have been in business for more than year

Many carriers and factoring firms will not extend credit to brokers who have been in business for less than a year. They do this to mitigate risk and this is a practice that should also be considered by brokers when deciding which carriers to work with. There is not a large barrier to entry to set up carrier authority so new MC#’s pop up daily. Carriers that are less experienced may not have the necessary infrastructure and resources to transport goods efficiently and effectively which may lead to them double-brokering your freight. By working with carriers that have been in business for longer periods of time brokers can minimize the risk of double-brokering and ensure their clients’ goods are transported safely.

  1. Build relationships with carriers

Building relationships with carriers is another effective way to avoid double-brokering. Brokers can develop a network of reliable carriers they trust and can work with them on an ongoing basis. By establishing a good rapport with carriers, brokers can gain insight into their operations and can develop a better understanding of their capabilities, strengths, and limitations.

  1. Be aware of dispatch service providers

One way that freight brokers can inadvertently double broker shipments is by interacting with dispatch service providers. Dispatch services are third-party companies that essentially find loads for smaller carriers and help with their back-office support. While dispatching services can be useful to smaller owner operators in some cases, they can increase the risk of double brokering. There are many dispatching services that find posted loads from brokers or shippers on load boards and then give them to a carrier under the guise that they are an employ of the trucking company. When you work with a dispatch service you may be opening yourself up to a lack of visibility, a lack of control and a lack of accountability if something should go awry.

  1. Use load tracking technology

Load tracking technology is another valuable tool for brokers to minimize the risk of double-brokering. This technology allows brokers to track the location and status of their clients’ goods in real-time, which can help identify any issues or delays that may arise during transport. Load tracking technology can also provide brokers with valuable data on carrier performance, such as on-time delivery rates, average transit times, and other key metrics. By using GPS and/or electronic logging devices you can ensure that loads are being transported by the assigned carrier and prevent unauthorized assignments.

  1. Include anti-double-brokering clauses in contracts

Broker can also protect themselves from double-brokering by including clauses in their contracts with carriers. These clauses can stipulate that carriers are prohibited from double-brokering shipments and can also outline the consequences for doing so. For example, the contract may stipulate that carriers will be liable for any damages or losses resulting from double-brokering and may also provide for termination of the contract in the event of a violation.

As a freight broker, it is essential to be aware of the risks of double-brokering and take steps to avoid becoming a victim. By following these best practices brokers can ensure that their clients’ goods are transported reliably, legally, and can protect themselves from the risks associated with double-brokering.

Broker Credit Ratings on Factoring Rates

By: David Yoe, VP of Operations and Business Development, TransCredit

A freight broker is a middleman who helps connect shippers with carriers to transport goods. While a broker’s role is to facilitate the transportation process, their credit score is an important factor that impacts their factoring rates when they use factoring services. Factoring is a financing option that allows freight brokers to get paid faster by selling their accounts receivable to a factoring company. The factoring company will advance the broker a portion of the invoice value, usually around 80%, and then collect payment from the shipper when the invoice is due.

A Freight Broker’s Credit Score

This is an indicator of their financial stability and ability to repay debt. It reflects the broker’s past credit behavior, including payment history, outstanding debt, and the length of their credit history. The higher the credit score, the lower the risk for the factoring company, which means that the broker can expect lower factoring rates. On the other hand, a lower credit score will increase the perceived risk for the factoring company, leading to higher factoring rates for the broker.

In general, factoring companies will consider a broker’s credit score as one of the key factors in determining their factoring rates. It’s important to note that while a good credit score is desirable, it’s not the only factor that influences the factoring rate. Other factors, such as the broker’s business history, the size of their accounts receivable, and the industry they operate in, are also taken into consideration when determining the factoring rate.

Factoring companies also look at the creditworthiness of the shippers that the broker is working with. Shippers that have a strong credit history and are less likely to default on payment will increase the perceived security for the factoring company, which may result in lower factoring rates for the broker. In contrast, if the shippers that the broker works with have a poor credit history or are in a high-risk industry, the factoring rate may be higher to reflect the increased risk.

It’s also important for freight brokers to understand the difference between personal and business credit scores. Personal credit scores reflect an individual’s credit history and behavior, while business credit scores reflect the financial stability and credit history of a company. A broker’s business credit score may be different from their personal credit score, and both may be considered by factoring companies when determining the factoring rate.

Getting the Best Factoring Rates

Freight brokers should take steps to improve their credit score. This may include paying bills on time, reducing outstanding debt, and establishing a strong credit history. By improving their credit score, brokers can demonstrate their financial stability and increase their chances of getting favorable factoring rates.

In conclusion, a freight broker’s credit score is a critical factor that impacts their factoring rates. A good credit score demonstrates financial stability and a low risk of default, which can result in lower factoring rates for the broker. On the other hand, a poor credit score can result in higher factoring rates, making it more expensive for the broker to access funding. Freight brokers should take steps to improve their credit score, including paying bills on time, reducing outstanding debt, and establishing a strong credit history, to increase their chances of getting favorable factoring rates.

TransCredit has been one of the primary credit reporting agencies in the transportation industry for 38 years. If you are a freight broker, we encourage you to contact us to find out what your company’s credit score is and to explore the options we have available to update, manage and monitor your report.

 

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