Most freight brokerages, both small and large, treat carriers fairly and pay in a reasonable amount of time. However, even with stiffer penalties today for freight brokerages that do not pay on time, there are still brokers who present a significant credit risk to carriers. This risk effects trucking companies of all sizes, but is especially problematic for smaller carriers. For these carriers, failing to receive payment on even a single load can have devastating financial consequences.
Carriers Should Take Precautions
The government has taken steps in recent years to make it harder for brokerages to exploit carriers. A new federal law that requires freight brokers to post $75,000 surety bonds went into effect in late 2013. The law’s purpose is to weed out corruption in the freight brokerage industry. It also provides more financial protection for carriers victimized by brokers who do not pay them.
The $75,000 bond requirement discouraged at least 10% of the nation’s freight brokers from renewing their licenses for 2014. However, the new law is not expected to remove all unscrupulous brokers from the business. There are still freight brokers operating that are bad credit risks. Trucking companies must take precautions to ensure they are protected when working with any new brokers.
How to Reduce the Risk
Here are three steps your trucking company can take to reduce the chances of working with an unreliable broker:
Ask questions. Three things you need to know before working with any broker: Do they have the $75,000 bond, how long have
they been in business, and how are they going to pay you? You should also request two or three business references and ask if the brokerage provides other services. For example, many brokers also run their own trucking companies.
Trust your gut. Pay close attention to the way a brokerage conducts business. How do the brokers answer the phone? Are they professional and easy to reach? Does the brokerage have a website, and what does it look like? An experienced freight brokerage cares about its outward appearance and building relationships. It does business differently from, say, a trucking dispatcher who is brokering loads on the side.
Check the broker’s history. This is the most crucial step. A quick Internet search should reveal the broker’s MC number, DOT number and other information. From this you can find out how long the brokerage has had an active authority, its insurance carrier and other useful information. Much of this information can be found on the Federal Motor Carrier Safety Administration’s website .
You can also check the broker’s credit rating and days-to-pay information with a third-party that provides credit reporting services. RTS Credit Service monitors payment and credit information on thousands of freight brokerages, and provides detailed credit reports specifically designed for carriers. This services (and others like it) are relatively inexpensive and can save your company thousands of dollars by avoiding freight brokers that have a high credit risk.
Interesting in RTS Credit? Click here to sign up for a free 7-day (or five free reports) trial.