Freight Brokerage Business. The Staff of Entrepreneur Media, Inc.

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СКАЧАТЬ bank loans, borrowing against your accounts receivable, or selling your accounts receivable (a process known as “factoring,” which is explained in more detail later in this chapter).

      You may have a tough time with conventional loan sources, because by traditional lending standards, most freight brokers would not be considered bankable. Even if you have a record of paying your bills on time, you will likely need a revolving line of credit significantly higher than whatever assets you have to offer for collateral.

Setting Credit Policies

      Because you are billing your shippers, or sometimes the consignees, you need to set credit policies and procedures. When you extend credit, you do so under the assumption that the customer intends to pay, is capable of paying, and that nothing will prevent him or her from paying. Most of your customers will be honest and dependable when paying their bills, but that doesn’t mean you should blindly extend credit without first gathering and verifying information.

      Each new customer should complete a credit application, and you should check the information he or she provides. This is standard practice in business. If a customer objects to completing a credit application, seriously consider whether extending credit to that customer is a safe thing to do. Look at it this way: When you extend credit for a service, you are essentially granting an unsecured, interest-free loan. Once the goods have been moved and delivered, you can’t take back the service—and you (depending, of course, on the terms of your carrier agreement) are responsible for paying the carrier whether or not the shipper pays you.

      Thanks in large part to the old Interstate Commerce Commission regulation that required payment of freight bills within seven days, most shippers have systems set up to pay freight bills faster than other invoices. “In the old days, it was regulation,” Tucker said. “Today, it’s entirely contractual among the parties. But carriers usually have pretty narrow margins. [Trucking companies have] a serious financial burden to carry. [They have] to pay the driver, buy the fuel, buy the insurance, and make the loan payments on the equipment—all before the driver goes out the door.”

      • Tax Facts

      You’ve probably heard this most of your life: The only two sure things in this world are death and taxes. Businesses—including freight brokers—are required to pay a wide range of taxes. Keep good records so you can offset your local, state, and federal income taxes with the expenses of operating your company. If you have employees, you’ll be responsible for paying payroll taxes.

      If you operate as a corporation, you’ll have to pay payroll taxes for yourself; as a sole proprietor, you’ll pay self-employment tax. Then there are property taxes, taxes on your equipment and inventory (minimal though it may be), fees and taxes to maintain your corporate status, your business license fee (which is really a tax), and other lesser-known taxes. Take the time to review all your tax liabilities with your accountant, and check out the taxes section in Entrepreneur Press’ Start Your Own Business for more information.

      Cooperative shippers understand the economic realities of trucking, and that if truckers are going to stay in business, they must be paid promptly. But you will still have customers who will take as long as you allow them to pay. It’s your responsibility to set your terms and make those terms very clear to your customers.

      You can include your terms (essentially when payment is due) on your credit application and have customers sign an acknowledgment that they know, understand, and agree to abide by your policies. On each invoice, clearly indicate the date the invoice will become past due.

Warning Signs

      Just because a customer passed your first credit check with flying colors doesn’t mean you should neglect to reevaluate their credit status. In fact, you should do it on a regular basis.

      Tell customers when you initially grant their credit applications that you have a policy of periodically reviewing accounts so that when you do it, it’s not a surprise. Things can change very quickly in the business world, and a company that is on sound financial footing this year may be quite wobbly next year.

      An annual reevaluation of all customers on an open account is a good idea—but if you start to see trouble in the interim, don’t wait to take action. Another time to reevaluate a customer’s credit is when they request an increase in their credit line.

      Some key trouble signs are a slowdown in payments, increased complaints, and difficulty getting answers to your payment inquiries. Even a sharp increase in volume could signal trouble; companies concerned that they may lose their credit privileges with you may try to milk you while they can, and if they aren’t paying other brokers or carriers, they may have already lost some credit privileges and be looking to replace those sources. Pay attention to what your customers are doing; a major change in their customer base or product lines is something you may want to monitor.

      Tucker says the process of providing good service to customers will also alert you to potential credit problems. “Just in the course of my relationship with the company, I talk to the president, I talk to the salespeople, I talk to the manufacturing people, I talk to the traffic manager, and even the guy who loads the trucks,” he says.

      Changes in a company’s transportation needs and patterns can be early indicators of a problem. So what does Tucker do if he spots a red flag? “It depends on the details and on how serious it is. We may be [able to] help them solve their financial or market problem. But you also have to keep at arm’s length if they are getting into trouble. You have to either quietly be ‘running out of trucks,’ or tell them the salesperson will be in there every Friday to pick up a check.

      “It’s our job to protect the money every way we can, including refusing to extend more credit and walking away from the business. Sometimes you just have to do that. But you have to know when, and you have to be able to evaluate those things. And we stay close enough to the customer so we can at least minimize the hit,” says Tucker.

      Most customers accept routine credit reviews as a sound business practice. A customer who objects may well have something to hide—and that’s something you need to know.

Cash-Flow Controls

      Certainly cash flow is important to any business, but it is critical to a freight brokerage. You need to keep sufficient cash on hand to pay your regular operating expenses and your carriers, but not so much that you miss out on revenue from alternative investments. In addition, you need to take steps to protect your company from internal theft.

      tip

      Often, employees are motivated to steal by the feeling that they are being underpaid or that the business owner is making excessive profits on workers’ efforts, so the employee feels “entitled” to steal. Help prevent this attitude by paying fair wages and treating your employees with respect.

      Before you hire your first employee, set up internal controls to safeguard your assets and assure maximum cash flow management. One such control is to require proper authorization of transactions. Be specific as to which individuals are authorized to carry out what tasks, and hold them accountable for their actions.

      You’ll also want to establish a separation of duties so the person СКАЧАТЬ