Freight Brokerage Business. The Staff of Entrepreneur Media, Inc.
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among the parties. But carriers usually have pretty narrow margins. [Trucking companies have] a serious financial burden to carry. [They have] to pay the driver, buy the fuel, buy the insurance, and make the loan payments on the equipment—all before the driver goes out the door.”
• Tax Facts
You’ve probably heard this most of your life: The only two sure things in this world are death and taxes. Businesses—including freight brokers—are required to pay a wide range of taxes. Keep good records so you can offset your local, state, and federal income taxes with the expenses of operating your company. If you have employees, you’ll be responsible for paying payroll taxes.
If you operate as a corporation, you’ll have to pay payroll taxes for yourself; as a sole proprietor, you’ll pay self-employment tax. Then there are property taxes, taxes on your equipment and inventory (minimal though it may be), fees and taxes to maintain your corporate status, your business license fee (which is really a tax), and other lesser-known taxes. Take the time to review all your tax liabilities with your accountant, and check out the taxes section in Entrepreneur Press’ Start Your Own Business for more information.
Cooperative shippers understand the economic realities of trucking, and that if truckers are going to stay in business, they must be paid promptly. But you will still have customers who will take as long as you allow them to pay. It’s your responsibility to set your terms and make those terms very clear to your customers.
You can include your terms (essentially when payment is due) on your credit application and have customers sign an acknowledgment that they know, understand, and agree to abide by your policies. On each invoice, clearly indicate the date the invoice will become past due.
Just because a customer passed your first credit check with flying colors doesn’t mean you should neglect to reevaluate their credit status. In fact, you should do it on a regular basis.
Tell customers when you initially grant their credit applications that you have a policy of periodically reviewing accounts so that when you do it, it’s not a surprise. Things can change very quickly in the business world, and a company that is on sound financial footing this year may be quite wobbly next year.
An annual reevaluation of all customers on an open account is a good idea—but if you start to see trouble in the interim, don’t wait to take action. Another time to reevaluate a customer’s credit is when they request an increase in their credit line.
Some key trouble signs are a slowdown in payments, increased complaints, and difficulty getting answers to your payment inquiries. Even a sharp increase in volume could signal trouble; companies concerned that they may lose their credit privileges with you may try to milk you while they can, and if they aren’t paying other brokers or carriers, they may have already lost some credit privileges and be looking to replace those sources. Pay attention to what your customers are doing; a major change in their customer base or product lines is something you may want to monitor.
Tucker says the process of providing good service to customers will also alert you to potential credit problems. “Just in the course of my relationship with the company, I talk to the president, I talk to the salespeople, I talk to the manufacturing people, I talk to the traffic manager, and even the guy who loads the trucks,” he says.
Changes in a company’s transportation needs and patterns can be early indicators of a problem. So what does Tucker do if he spots a red flag? “It depends on the details and on how serious it is. We may be [able to] help them solve their financial or market problem. But you also have to keep at arm’s length if they are getting into trouble. You have to either quietly be ‘running out of trucks,’ or tell them the salesperson will be in there every Friday to pick up a check.
“It’s our job to protect the money every way we can, including refusing to extend more credit and walking away from the business. Sometimes you just have to do that. But you have to know when, and you have to be able to evaluate those things. And we stay close enough to the customer so we can at least minimize the hit,” says Tucker.
Most customers accept routine credit reviews as a sound business practice. A customer who objects may well have something to hide—and that’s something you need to know.
Certainly cash flow is important to any business, but it is critical to a freight brokerage. You need to keep sufficient cash on hand to pay your regular operating expenses and your carriers, but not so much that you miss out on revenue from alternative investments. In addition, you need to take steps to protect your company from internal theft.
tip
Often, employees are motivated to steal by the feeling that they are being underpaid or that the business owner is making excessive profits on workers’ efforts, so the employee feels “entitled” to steal. Help prevent this attitude by paying fair wages and treating your employees with respect.
Before you hire your first employee, set up internal controls to safeguard your assets and assure maximum cash flow management. One such control is to require proper authorization of transactions. Be specific as to which individuals are authorized to carry out what tasks, and hold them accountable for their actions.
You’ll also want to establish a separation of duties so the person responsible for custody of an asset is not also responsible for record keeping that same asset. This prevents someone from stealing and then changing records to cover up what he or she has done.
Be sure the records you keep are adequate to satisfy financial and tax reporting requirements, as well as the federal regulations governing freight brokers. However, you should limit access to both assets and documents to prevent unauthorized use or theft; keep access on a needs-only basis.
Finally, set up a system to independently verify individual performance. Someone who was not involved in the work should check it for accuracy. This will help uncover intentional theft and fraud, as well as unintentional errors.
Beyond techniques to protect your assets, you’ll also need systems to maximize them. Consider these:
• Set up a sweep account. This is a service banks offer that lets you earn the maximum interest on all the money in your accounts, even if it’s just overnight, without penalties or concerns of bouncing checks. The system is set up so funds are automatically moved—or swept—in and out of the appropriate accounts each day. If your banker is reluctant to set you up with this type of an account, shop around for one who will.
• Use a lockbox for receivables. Another bank service, a lockbox, works like this: Your customers mail their payments to a post office box that your bank rents in your company’s name. The bank sends a courier several times a day to clear out the box, checks are immediately deposited into your account—literally within hours of their arrival in the mail—and you get a report outlining all the transactions in as much detail as you want, as frequently as you want. Lockboxes mean you no longer have to run to the bank with deposits, or spend your (or one of your staff member’s) valuable time opening envelopes, recording payments, and preparing deposits.
• Accept electronic payments. Talk to your banker about getting set up so you can accept payments through electronic transfers.
• Invoice on a timely basis. You can’t expect customers to pay until you’ve issued an invoice, so get your invoices out as soon as you know what all the appropriate charges on a given shipment are. Be sure you include whatever documentation is necessary (copies of bills of lading, delivery receipts, etc.) for your customers to pay promptly.
• Enforce your