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What is a “Quick Pay” and how is it used in Freight Brokering?
“Days to pay” refers to how long it takes for a freight broker to issue a payment on the invoice they received from a motor carrier. And we determined that the average time is usually 30 to 45 days. However, some motor carriers may want to get paid faster. Therefore, some freight brokers offer them the option of “quick pay.” What that means is that a freight broker issues a payment as soon as the motor carrier makes a delivery and submits all the paperwork. In return, a freight broker will charge a percentage, usually anything from 1.5 to 5% of the invoice value for processing such a quick payment.
As you can logically see, that's where the word “quick pay” comes from. You are paying a motor carrier quickly and charging them a percentage of the invoice value for that.
Now let's discuss why you may want to offer this option to motor carriers.
There are two main reasons to do this.
1. If you are just starting out and your freight brokerage doesn't have established credit yet, many factoring companies may not be willing to factor your load. That’s a problem for motor carriers because they expect to get paid fast one way or the other. So, if you do not offer a quick pay option, they will not be willing to transport your load, but if you do, they might be more agreeable to transporting your cargo.
So, when you talk to a motor carrier, and they tell you, “Oops, sorry, you know, I cannot pick up this load because my factoring company does not have you in their system and they won’t factor this load,” you can say, “Hey, how about this? I can offer you a quick pay at reduced rate, or I can offer you a quick pay without a charge.” This way you are motivating a motor carrier to transport your load.
2. If you already have established credit and charge a certain percentage of the invoice value, you are generating extra return on your capital.
Normally you would pay motor carriers within 30 days, however, by paying motor carriers immediately, you could be making from 1.5 to 5%. Such percentage can translate into 18 to 60% annual return on your capital, which is fantastic by market standard. Also, if you are using a Factoring Company for your own receivables, offering a quick pay option can help you offset the fees charged by a factoring company.
We understand that subject of quick pay and factoring may be confusing. If you still have any questions, you can contact LearnFreight support team, and we’ll be happy to help!