Step 4: Decide how you’ll get paid
One important thing to understand as you start your carrier operations is that most customers (brokers and shippers) do not pay the moment you deliver.
Most brokers have Net 30 payment terms. This means that if you deliver a load on January 1st, you won’t get paid until January 31st.
Brokers face the same issue with shippers: many shippers do not pay for 60-90 days until after the load has been delivered. Usually, the larger the shipper, the longer their payment terms.
If you take it one step further, shippers actually face the same issue with consumers. Let’s say Walmart sells an item to a customer on January 1st. Walmart actually incurred the costs to manufacture and transport the item many months ago.
This means that nearly every player in the logistics industry needs to finance their working capital. The larger players raise debt facilities. Many small carriers use factoring companies, to get paid as soon as they deliver.
Understanding factoring
Factoring companies do the following for their carrier customers:
- They pay you as soon as you send acceptable proof of delivery for a load
- They vet the creditworthiness of brokers
- They handle all collections operations (sending invoices, chasing late payments, reconciling incoming deposits with invoices)
Factoring allows you to sell your unpaid invoices to a factoring company at a discounted rate, giving you immediate access to cash.
The process is simple: once you deliver a load, instead of waiting for weeks or even months for the payment, you send the paperwork to a factoring company. They will verify the authenticity and legitimacy before offering you a percentage of the invoice's value upfront. Most factoring companies deposit cash to your account within 24-48 hours for a 2-4% fee.
In addition to the obvious service of upfront cash payment, factoring companies handle all collections operations on behalf of their carrier customers. This saves carriers time spent chasing down late payments and handling collections efforts.
Additionally, most factoring companies take on the risk of vetting brokers for creditworthiness. In these contracts, if a broker goes out of business, but the factoring company approved you to factor a load from that broker, the factoring company will pay the expected invoice.
How to invoice brokers directly
Many carriers choose to save the 2-4% and manage cash flow themselves. If you choose to invoice brokers directly, you would follow the steps below:
0. Create your standard invoice template
Since your bank remit information does not change from load to load, you can create a standard invoice template to use for all loads. You can use our Invoice Template or create your own.
1. Record billing details
For each broker you book a load with, record how, where, and when they require you to bill them for the load.
You can find billing details on the Rate Confirmation document. Most brokers will require the invoice sent to a specific email address. A few will require you to download a separate app and upload the paperwork to their portal, or even to mail the documents via physical mail.
2. Assemble your “invoice packet”
Once you deliver, you’ll want to have the following documents ready: the signed Rate Confirmation, Proof of Delivery, and the Invoice.
Many brokers will delay or withhold payment if they deem the Proof of Delivery to be incomplete in any way. To make sure they
3. Send the invoice
Most brokers require that you email them the invoice packet, so we’ll outline the standard email here:
Subject: Invoice for load # [load number on RateCon], MC[your MC#]
Body: Reference the load number and your MC number again
Attachments: RateCon, POD, and Invoice, all as separate PDFs or as a single PDF
4. Follow up the moment the invoice is overdue
Many brokers need this extra step. We recommend that you include a copy of the original invoice for reference.
Continue the New Authority Checklist series below:
New Authority Checklist 1: First Things First (Business Setup)
New Authority Checklist 2: Choose Your Player (Equipment)
New Authority Checklist 3: Cover Your Assets (Insurance)
About TrueNorth
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