Brokerage
Freight factoring for brokers, and the cash flow gap
You pay the carrier in 15 days. The shipper pays you in 45. That 30 day hole is what kills profitable brokerages.
Here is the math that surprises new brokers. You book a load at $2,400 and pay the carrier $2,000. You made $400. Except the carrier wants paying in 15 days on standard terms, and your shipper pays on net 45. So for 30 days you are out $2,000 in cash on a load you already profited from.
Now do that ten times a week. You need roughly $80,000 of working capital to run a business that nets $4,000 a week. That gap, not sales, is what stops most brokerages from scaling.
The four ways brokers close the gap
1. Your own cash. Cheapest option, zero cost, and it caps your volume at whatever is in the account. Fine for the first few months.
2. Broker factoring. A factor advances you against your invoice to the shipper, usually 90 to 97 percent, and collects from the shipper directly. You pay a percentage of the invoice. Typical range is 1 to 3.5 percent depending on volume, shipper credit quality, and terms.
3. Quick pay to the carrier, reversed. Instead of funding your receivable, you extend your payable. Some carriers will take 2 to 3 percent off their rate for payment in 24 to 48 hours. That is you buying speed, not selling it, and it costs you margin rather than fixing cash.
4. A line of credit. Cheapest at scale, hardest to get early, because a brokerage with no operating history and no assets is not a lender's favorite file.
What factoring actually costs you
| Factor rate | On a $2,400 invoice | Effect on a $400 margin |
|---|---|---|
| 1.0% | $24 | 6% of your margin |
| 2.0% | $48 | 12% of your margin |
| 3.5% | $84 | 21% of your margin |
Read that last row twice. At thin margins, a high factor rate eats a fifth of the profit. Factoring is a tool for growth, not a permanent operating condition. The goal is to graduate to a line of credit.
Recourse and non-recourse
Recourse means if your shipper never pays, you owe the money back. Cheaper rate, you keep the credit risk.
Non-recourse means the factor eats certain non-payments, usually only for a defined reason like the shipper going insolvent. Higher rate, and the exclusions are where the real terms live. Read them.
What to check before you sign with a factor
- Is there a monthly minimum volume, and what is the penalty for missing it
- Is the term month to month or a locked contract with an early termination fee
- Are there add-on fees for wires, ACH, invoice uploads, or credit checks
- Who talks to your shipper, and how do they talk to them, because they are representing you
- What is the advance rate and when does the reserve release
That fourth one gets overlooked and it costs accounts. A factor who chases your customer aggressively can lose you the customer.
The discipline that replaces all of this
Shipper credit terms are negotiable more often than new brokers assume, and carrier terms are too. Every day you shave off the gap is working capital you do not have to rent. Ask for net 30 instead of net 45. Ask the carrier for 20 day terms once you have a relationship. Those two conversations are free and they do more for your cash position than shopping factor rates.
Common questions
Can freight brokers use factoring?
Yes. Broker factoring advances cash against your invoice to the shipper so you can pay carriers before the shipper pays you. It is a different product from carrier factoring and is priced on your shippers' credit, not yours.
How much does freight broker factoring cost?
Typically 1 to 3.5 percent of the invoice, depending on volume, shipper credit quality, and payment terms. On thin margins that can represent a meaningful share of your profit, so treat it as a growth tool rather than a permanent setup.
How much working capital does a freight broker need?
Enough to cover every carrier payment that comes due before your shippers pay you. A practical estimate is your weekly carrier spend multiplied by the number of weeks between paying carriers and getting paid.
Is quick pay the same as factoring?
No. Quick pay is you paying a carrier early at a discount, which costs you margin. Factoring is a third party advancing you cash against your receivable, which costs you a fee but preserves your cash position.
Do you need factoring to start as a freight broker?
No, if you have enough cash to pay carriers while you wait on shippers. Factoring exists to close that gap when growth outruns your bank account, and it is cheaper than losing a carrier because you paid late.
Want the whole system instead of the summary?
The Brokerage Accelerator is the full build, from authority paperwork to the call scripts that get you your first shipper. 500+ members inside.
This page is one piece of the full freight broker training, built the same order you would actually do it.