Funding for Logistics and Freight Brokerages

The float gap that defines a brokerage

A brokerage earns a spread on each load, but cash leaves before it arrives. Growth makes the gap larger, not smaller.

Suppose a load pays you $2,000 and you pay the carrier $1,700. Your margin is $300, yet you may pay the carrier in a week and collect from the shipper in 45 days. Every new customer therefore increases the cash you must front. Brokerages that grow quickly can run out of cash even while profitable on paper.

Knowing your average days to collect and your average days to pay is the first step. The gap multiplied by daily volume tells you the working capital you actually need.

Fast carrier pay is also a competitive tool. Carriers choose which brokerages to haul for based partly on how quickly they are paid, so a brokerage that pays in two days often gets first call on good capacity. That advantage has a price, and funding is how many brokerages afford it.

What the money is used for

Brokerages use funding to pay carriers on time, to add sales staff or dispatchers, to buy technology, and to cover bonding and insurance requirements.

• Carrier pay float: paying carriers quickly keeps them loyal and gets you better capacity.
• Staff: a new sales rep or dispatcher is paid before their loads produce margin.
• Technology: a transportation management system, load boards and tracking.
• Bond and insurance: freight broker authority carries a surety bond and contingent cargo coverage.

These costs fit working capital and a business line of credit.

Example: sizing a line of credit

Multiply daily loads by the average carrier cost and the days between paying carriers and collecting. That is the cash you must front.

This is an illustrative example. A brokerage moves 10 loads a day, each costing $1,700 in carrier pay. Carriers are paid in 7 days and shippers pay in 40 days.

1. Gap: 33 days.
2. Daily carrier cost: 10 x $1,700 = $17,000.
3. Cash you must front: about $17,000 x 33 = $561,000 if volume is steady.

That is a lot, which is why many brokerages grow slowly or use invoice factoring. Factoring is a separate product that sells invoices for cash. We do not place it, but it is worth comparing with a line of credit. A line costs interest only on what you draw, while factoring charges a fee on each invoice. Run both through our total cost worksheet.

Revisit the numbers each quarter. If shipper terms lengthen from 40 to 55 days, the cash you must front grows by roughly a third even though volume has not changed. Many brokerages are caught by this drift rather than by growth.

Where ROI Funder fits and where it does not

ROI Funder places funding for brokerages with $20,000 or more in monthly revenue. It does not place factoring, and many funders restrict long-haul trucking carriers.

If your business is a brokerage that does not run its own trucks, funders judge it mostly on bank deposits and margin stability. If you also run your own long-haul truckload or LTL fleet, note that many funders restrict that segment, and we cannot promise a match. Read our page on trucking funding for the details.

ROI Funder considers 500+ FICO and 6 or more months in business. Gross revenue for a brokerage includes carrier pay, so funders may ask about your net margin. Be ready to explain it.

How funders read a brokerage's bank statements

Deposits from shippers are large and lumpy, and withdrawals to carriers are frequent. A clear explanation of that pattern prevents confusion.

A funder sees big deposits and big payouts and might misread them as low margin. Provide a short summary of average gross revenue, carrier cost and net margin per load. Keep one operating account for loads so the statements are clean, and keep personal spending out of it.

Consistent monthly volume matters more than the biggest single month.

Customer concentration and credit risk

If one shipper is most of your volume, a late or lost payment could break your cash flow. Plan for that before borrowing.

Check shipper credit before extending terms. A shipper that pays in 90 days can make a profitable load unprofitable once financing costs are counted. Many brokerages set limits per shipper and move slow payers to shorter terms. Borrowing to fund a slow payer rarely improves the economics.

Choosing the right amount

Borrow enough to cover the float for your current volume plus modest growth, and avoid borrowing for volume you have not yet won.

Start with the gap math, then add a cushion. Revenue-based financing can ease repayment because payments rise and fall with sales, but compare its total cost to a line of credit. If you want help matching the right fit, start an application. It takes a few minutes and uses a soft credit pull.