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What are “Days to Pay” in Freight Brokering?
When you get involved with freight brokering, sooner or later — and rather sooner — you will hear the term “days to pay.” What is it, and how does it relate to freight brokering? Well, “days to pay” is a term used to determine how many days it takes to receive a payment from a company, starting from the day invoices are sent to them.
Most brokers work on a “net 30” term, meaning they promise to pay motor carriers within 30 days. Once a motor carrier makes a delivery and sends all the documents to a freight broker, that freight broker makes a promise to make a payment within a 30-day period.
Even so, there might be a net 30 outline in the broker-carrier agreement, which we are going to discuss in another post. That doesn't mean that a freight broker will be paying within this timeframe. Some freight brokers may pay sooner, and some may take longer, depending on their financial situation and policies.
Why should you, as a freight broker, care about a “days to pay” number?
A “days to pay” number basically shows your financial stability and credibility. If you have the money, you will pay motor carriers fast, which is what they want. They want to receive their payments as soon as possible.
If you are financially unstable and it takes you longer to process invoices and find the funds to pay motor carriers, then you know your days to pay may be 45, 60 or even more than 60 days. That is not a good scenario because motor carriers don't want to work with slow-paying freight brokers, and neither do factoring companies. It takes longer for them to receive their payments, which affects their cash flow.
As we discuss in our freight broker training course, it is crucial to pay motor carriers as quickly as possible. Ideally, you want to do it in less than 30 days, though under 45 days is also okay. However, most brokers who take longer than 45 days to pay their motor carriers or factoring companies are considered slow-paying freight brokers and are less credible and less factored. And some motor carriers will just choose not to work with you because they don't want to wait so long for their payments.
You need to make sure that you watch your cash flow. It may take longer than 30 days to receive payments from shippers, so you must be adequately funded to be able to pay motor carriers even if you still haven't received a payment from a shipper. Alternatively, you might be utilizing the help of a factoring company. We will discuss Factoring for Freight Brokers in a different post.
Are you thinking about becoming a Freight Broker or a Freight Agent? LearnFreight offers Online Freight Brokering Training Courses which are suitable for people not familiar with transportation industry. Learn more about our training by visiting Training Details page or choose your course here.