Not sure how to choose the right freight broker? Or wondering if you really need to run a broker credit check once you find a freight broker you want to work with?
Simply put, the broker you choose to work with can make or break your experience. Although it’s tough to get in with top freight brokers because they prefer to work with carriers they know and trust already, becoming established with one or more will help you streamline your work and ensure timely payment.
This article will explore how to check freight broker credit scores, reputations, and freight broker authority, how to compare freight brokers, and how to choose the best freight broker to work with.
How to Conduct a Comprehensive Freight Broker Credit Check
Conducting a comprehensive credit check on a freight broker is crucial to ensure your business interactions are secure and financially sound. Start by requesting a copy of their credit report from reputable credit bureaus. This report should provide a detailed business credit score, which reflects the broker’s ability to pay on time. A good credit score, typically above 70, indicates financial stability and reliability. Additionally, it’s important to check for any history of not paying carriers on time or a history of paying in full, as these are critical indicators of a broker’s financial health.
When examining the credit report, pay attention to the broker’s cash flow and overall financial health. These aspects are especially important in the transportation industry, where timely payments are crucial. Also, consider conducting regular credit checks, as a broker’s financial situation can change, impacting their creditworthiness. By ensuring that the freight broker maintains a good credit score and has a reliable financial history, you set your business up for success, minimizing the risk associated with working with a broker who may have low credit or a history of financial instability.
1. Conduct a Broker Credit Check Through a Third Party
A formal credit check will show you the broker’s payment history and help you determine whether the freight broker you are considering working with is a credit risk or not. When checking a freight broker’s credit score, pay special attention to how long it typically takes the broker to pay and whether they’ve defaulted on payment. Although the credit check will show several years back, the recent history typically matters most. For example, you may notice slow payments five years ago. If all recent payments are made in a timely manner, it may signify the broker has recently become more stable.
If you’re working with a freight factoring company, they’ll usually take care of this step for you. Factoring companies will even help you identify how much work you can accept from each broker without taking on any unnecessary risk. For example, you might learn that it’s better not to accept more than $50,000 of work from one broker but discover another can likely make good on up to $500,000 in payments.
2. Check Freight Broker Authority to Ensure the Freight Broker is Licensed
Freight broker authority is the permission granted by the government that allows brokers to facilitate the load deliveries between shippers and carriers. The Federal Motor Carrier Safety Administration (FMCSA) grants this authority. Brokers are required to be licensed if they’re engaging in interstate commerce. Because of this, accepting work from an unlicensed broker is risky. Instead, use the FMCSA Licensing and Insurance search (also known as the FMCSA Broker Authority Search) to confirm the broker you want to work with is licensed. Having the broker MC number before you search is helpful, but you can get started with as little as the broker’s name and state.
Be aware that the search will return multiple business types, so ensure the entity type and operating status state that it’s an active broker. It’s also worth noting that it’s possible to be a broker owner-operator. Brokers can be carriers too, but they cannot double-broker their cargo.
3. Check Insurance and Bonding Details
Licensed brokers are required to have a $75,000 surety bond, known as a BMC-84 Bond. That way, if the broker does not make good on their payment obligations, the carrier owed money can make a claim against the bond and still get paid. The broker is then liable for repaying the bond company.
Insurance is also vital. Not only is it legally required, but their insurance will be leveraged if something unfortunate happens on the road.
In addition to being required by law, insurance and bonding demonstrate professionalism and help protect you as well. Look for these details when you run your FMCSA search.
4. Explore the Freight Broker’s Industry Certifications and Training
In most cases, freight brokers are not required to undergo any additional training. That means anyone who can get licensed, insured, and bonded can be a broker. Find out if the broker you want to work with has taken the initiative to expand their knowledge through additional certifications and training.
5. Ask Other Truckers and Carriers About the Freight Broker’s Reputation
It is always a good practice to check a broker’s online reputation and to ask around to see what other companies’ experiences have been with the broker in question. If you have contacts in the freight industry, ask for word-of-mouth recommendations. You can also search online for information and company reviews. Think beyond traditional “freight brokers near me” searches. For example, load boards will often have broker profiles or forums in which people discuss their personal experiences with different brokers. You might find mentions of brokers on review sites or with the Better Business Bureau. Check locally and the state in which the broker is headquartered.
6. Ask the Freight Broker for Information
Touch base with the broker anytime you can’t confirm the details outlined above and find out where you can get the information. You may also want to ask questions related to:
- How long the broker has been in business.
- What experience the broker had prior to opening the business.
- If they have references they can put you in touch with.
- How the broker plans to pay you.
A reputable freight broker will be happy to supply you with whatever information you need. However, if you feel like you’re getting the runaround or the information you’re receiving doesn’t add up, it may be best to forego the opportunity. Partnering with an unlicensed or unreputable broker can leave you without your hard-earned pay and potentially legally liable for any issues that occur.
Key Questions to Verify a Freight Broker’s Creditworthiness
To accurately assess a freight broker’s creditworthiness, it’s important to ask pointed questions that reveal their financial practices and stability. Inquire about their business credit score, which is a direct indicator of their financial health and their regularity in paying bills on time. Ask for a recent business credit report to verify this information independently.
Questions should also target the broker’s practices regarding their payment terms and history. For instance, how often do they conduct a credit check on themselves? What is their policy on maintaining a good credit score? Do they have a history of paying carriers on time, or have there been instances of delayed payments? Such inquiries can help you gauge the broker’s financial reliability and their commitment to upholding good business practices. Understanding these aspects is critical for forming a lasting and profitable business relationship in the freight and transportation industry.
Streamline Your Broker Checks with Freight Factoring
Freight factoring companies have grown in popularity because they accelerate payment for carriers. As soon as a load is delivered, a factoring company can advance the payment to the carrier and wait for payment from the broker. Some freight factoring companies also offer services like fuel cards to help their clients save cash too.
Because the broker ultimately pays the balance, freight factoring companies can work with carriers of all sizes—even owner/ operators. They’re more concerned about the broker’s credit than the credit history of the carrier because of this, so they run credit checks on the brokers too. That means the carrier has greater protection and faster payment. It’s more flexible than broker quick pay because you can also work with any broker of your choosing. At Charter Capital, we offer money-saving fuel card programs for our clients, free credit checks, flexible terms, and competitive rates, so you can focus on your load and not on chasing payments. To learn more, request a free transportation factoring rate quote.
- Can My Small Business Afford AI Solutions? - December 10, 2024
- Cybersecurity Insurance for Small Business: Is it Worth It? - November 11, 2024
- Customized Factoring Solutions for Seasonal Businesses - October 14, 2024
