A freight broker credit check is vitally important to running a successful carrier business. After all, as a business owner, you’ll want your business to have reliable partners.
Although conducting a credit check on a freight broker is important, it is often an overlooked step in the process. More often than not, a freight broker credit check is neglected either due to time or the search for greater profits.
However, that’s a dangerous trap to walk into! Here’s everything you need to know about freight broker credit checks.
Freight Broker Credit Check Explained
Each individual has a credit score associated with their social security number. This credit score tells banking institutions and lenders how credit worthy an individual is. With this statistic, a lender can decide if they are willing to lend you money, and how much they will charge to lend you money.
A freight broker credit check is very similar to a personal credit score. However, this credit check is strictly focused on how reputable the freight broker is.
A credit score is given to a freight broker, which is accessible through various business background check services or online portals. As a carrier, you can leverage this information to decide which freight broker you wish to partner with or use.
If a broker has exceptional credit and a great reputation, they may come at a premium charge. However, that expense is often justified. If a freight broker has a low credit rating, they either are new to the industry or not reputable. Nonetheless, their service is often discounted to attract more customers. However, those savings may not be worth the headache or trouble.
Is a Freight Broker Credit Score Necessary?
Believe it or not, a freight broker credit check is not entirely necessary. After all, if a landlord were to rent an apartment, the landlord doesn’t need to do a credit check on the potential tenant. However, it would be foolish not to. As a carrier, you have the right to complete a credit check on whichever freight broker you wish to work with, but this is not required.
With that in mind, if you’d like to get a better understanding of how long it will take your broker to release payment, or if the broker is even likely to release payment, it is in your best interest to complete a freight broker credit check.
History tends to repeat itself, so if a broker has a spotty history, don’t expect fantastic future service. Whereas if a broker has a stellar history, you can likely depend on that level of service to continue.
The Various Credit Tiers
The credit score for a freight broker is similar to a personal credit score in the sense that a freight broker’s credit score also has a scale associated with it. The higher the number, the more creditworthy the freight broker is. Freight broker’s credit scores fall within one of the following categories.
Brokers that have a score of 0 to 69 fall within the high risk category. These brokers either have a history of paying their customers late, not paying their customers at all, or not being in business long enough to build a higher credit rating.
If it is the latter, and you are inclined to work with this broker for various other business reasons, ask to speak to any customers they have serviced. You can contact their customers and ask for their feedback as to how reputable the broker is.
A score between 70 and 86 is considered to be a medium risk score. You still have the right to contact existing customers to solicit feedback. Don’t be afraid to do your own research on the carrier either.
Perhaps they have a new management team in place as the previous management team was not doing a good job. The existing management team is working on rebuilding the creditworthiness of the company.
If you wish to use a broker that is within the medium risk category, you should definitely work on negotiating the price of their service to make the deal/service more attractive.
Low Credit Score
Highly reputable brokers will be considered a low risk. This category is given to brokers that have a credit score between 87 and 100. Brokers within the low risk category may charge a higher fee for their service. However, their reputation, customer service, and timeliness of payment often justify this increased cost.
Risks to the Carrier
As a carrier, you have the right to use whatever broker you want. If you choose to work with a broker that has a poor credit score, be mindful of the following risks.
Late or Non-Payments
Following the landlord example from above, a landlord could still rent to someone with bad credit. However, that tenant may not pay on time. The same applies to a freight broker. If you decide to use a freight broker with bad credit, you run the risk of receiving your payment late, or even worse, not at all.
A broker’s reputation is very important. A lot could go wrong in the freight industry, and you want to be working with someone who has a track record of doing right by their customers and clients. If a broker has a bad reputation, word could travel fast.
In the freight broker business, or the entire shipping industry at large, reliability is key. Supply chains need to know where their product is, who has possession of the given product, and when the product will arrive. Working with a broker with poor credit may be a tell tale sign that the broker is not reliable.
How Brokers Can Improve Their Credit Score
A freight broker’s credit score is completely dynamic. In fact, a freight broker may have once been considered a low risk broker, but after doing wrong by a few customers, their credit rating may drop to a medium, or high risk.
Alternatively, a broker may be a high risk today but work towards becoming a low risk broker. Here are some of the ways a freight broker can improve their credit score.
Utilize Electronic Invoicing and Payments
Transmitting invoices and payments to your clients or customers electronically drastically reduces the time it takes to pay or receive an invoice. The sooner you pay your bill, the happier everyone will be and the higher your credit score will rise.
Find Missing Paperwork and Adjust Accordingly
Whenever freight is being moved, paperwork typically accompanies the shipment. Paperwork may be lost or misplaced. If that happens, adjust accordingly. Pivot with the customer and find a way to provide them with the details they need. Therefore a customer knows exactly what they are getting.
Stay Organized and Pay On Time
It’s difficult to pay bills on time if you are unorganized. As a freight broker, you should keep clean and organized records of all your transactions and customers. Doing so will allow you to pay your bills on time, resulting in elevating your credit score. It’s easy to lose or forget about something if you are disorganized.
Develop Strong Relationships with Carriers
Relationships are important in just about any industry! However, considering how much stress is associated with the shipping industry, maintaining healthy relationships is even more important. Do right by your customers and they’ll be satisfied.
Stay Consistent and Grow Your Score Overtime
Consistency is key to growing your credit score. You can’t just do right for a week or two and expect to be considered a low risk freight broker. Consistency leads to incremental gains, and incremental gains eventually lead to a low risk credit rating. Don’t become discouraged if it’s taking longer than expected to raise your credit score, it is a process and takes time!
Do Your Research
As a carrier, working with a reputable and credit worthy broker can be absolutely vital to the success of your business. A freight broker can be a trusted and strategic business partner. However, a freight broker can also negatively impact your business, and your business’s reputation, if you don’t pick the right freight broker.
Completing a freight broker credit check is a great way to pre-screen the brokers you plan on working with. A credit check will highlight how risky the freight broker is, if the freight broker has a history of paying in full, and on time, and if they are a reputable company. Working with a highly reputable freight broker may come at an increased expense, but it’s often well worth it!
A credit score for a freight broker highlights how risky the freight broker is. If they are a high risk broker, they may have a history of not paying their customers. If they are a low risk freight broker, they have done right by many customers in the past to earn this score!
A freight broker can absolutely increase their credit score over time. Alternatively, a freight brokers credit score can also decrease over time if they start paying their customers late, or become unreliable.
There are various websites and services one could use to check a freight broker’s credit score.