Freight brokers facing unfavorable market conditions and a squeeze on margins can improve their bottom lines by improving the efficiency of their back offices.
A broker’s main job is to find carriers to move freight for shippers, but the reality is that brokers often spend more time than necessary focusing on cash flow management and getting carriers paid.
According to recent FreightWaves FreightIntel Research, brokers are 9% less positive about gross margins in the final quarter of 2019 than they were in the third quarter. This dip in sentiment is evidence of a soft freight market, which led 640 carriers to close their doors in the first half of the year.
Brokers have to keep healthy margins to survive without knowing when the market will shift or when demand will again exceed supply. According to Echo Global Logistics’ chart of freight cycles, brokers should be on the lookout for a rise in spot rates, which will only increase after shippers take advantage of the current lower spot rates, move loads into the spot market and rebid paper rates.
Since outbound tender rejection rates correlate with spot rates, you can see below the chasm in the markets between 2018 and 2019. Tender rejection rates measure a carrier’s willingness to move a load under contract by a shipper. When spot market rates begin to rise, carriers will reject contracted loads to chase the higher rates.
Because carriers often factor their accounts receivables, brokers are constantly fielding calls from factoring companies and dealing with billing error disputes, which account for up to 30% of the invoices received, according to industry data. Those disputes must be resolved before the carrier is paid and the customer is billed. The human element of fluctuating productivity due to a dispute or bad day costs the brokerage money and risks relationships with carriers.
Software solutions are cropping up across the industry, from freight-matching to increasing driver autonomy and efficiency of carrier payment. Brokers often assume they already do what these third-party software solutions offer, and it’s too time-consuming and expensive to integrate.
“I think most [brokers] are resistant to change. It’s hard. We like what we’re used to and comfortable with,” said Tanna Tittle, billing manager at Freight-Tec in Bountiful, Utah.
Back-office automation, however, is an investment in brokerage growth that doesn’t require hiring additional people.
“Without it,” says Tom Whaley, president of Level One Technologies, “carrier payment and customer billing can become slow and expensive processes, and a broker’s cash flow can be severely affected. The problem can become even more acute when the number of invoices that must be submitted in specific file formats, or using specific methods of data exchange, continues to grow.”
Level One Technologies offers an integrated electronic payment system called Epay Manager, which was developed for the transportation industry. “Integrated” means Epay works with a broker’s existing transportation management system (TMS) to centralize accounting, imaging, management and communication in one web portal.
When Epay is fully implemented, the carrier gains transparency and the broker becomes a more proactive agent, by creating the invoice for the carrier rather than waiting for the invoice to be sent and then having to verify its authenticity. The system lowers the cost of processing a carrier’s invoice by reducing the audit process, eliminating mail time and improving productivity.
“The whole point is to give carriers control over when they’re going to be paid,” Whaley said.
If a brokerage seeks a higher level of performance and growth, it needs to be competitive not only on rates, lanes and service, but also on the timing and method of carrier payment.
“Our accounts payable department only cut checks for all previous invoices, which consumed a lot of time,” Tittle said. “With Epay’s automated clearing house (ACH) payment ability, payment is now fast and easy. Carriers also have the ability in Epay to choose a quick pay option per load, where before, if they wanted quick pay, it had to be for all their loads.”
The transition took patience, Tittle said, but Epay has helped Freight-Tec’s back office, a staff of 16 people, process approximately 30% more invoices a day, as well as track and follow up on unbilled loads.
“Whenever a carrier selects a payment date, that’s when the money is going to be deposited into their account,” said Jason Kirkpatrick, implementation manager at Level One Technologies. “Being able to select their payment date takes away all the questions and doubts that carriers have with their brokers about when they will receive their payment.”
Before solutions like Epay, brokers were at the mercy of large third-party payment providers, hired by their customers, who use web portals that require the broker to manually submit their customers’ billing data. Now, brokers can use Epay to automatically connect with those same companies and skip their portals.
At every level, Whaley said, brokers want to grow. Not only do they need to attract, service and please both customers and carriers — they also have to retain them to turn a profit.
Getting back-office inefficiencies under control can go a long way toward achieving that.