Freight brokers face a cash flow timing problem that most other businesses don’t deal with at the same scale. You owe the carrier within 15 to 30 days of delivery, but the shipper might not pay you for 30, 45, or even 60 days. That gap means you’re essentially extending credit to every customer, and if a shipper doesn’t pay, you’ve already covered the carrier out of your own pocket.

The first line of defense is credit vetting before you ever move a load. Smart brokers run credit checks on new shippers, set credit limits based on payment history and financial strength, and require credit applications before extending net terms. A shipper that wants net 45 on $50,000 worth of monthly freight is asking you to be their lender. Treat that decision with the same seriousness a lender would.

On the bookkeeping side, most brokers maintain a bad debt reserve, also called an allowance for doubtful accounts. This typically runs between 1% and 3% of outstanding accounts receivable and gets recognized monthly as a bad debt expense on the income statement. The corresponding credit sits as a contra-asset on the balance sheet, reducing the net value of your receivables to reflect what you actually expect to collect. When an account does go uncollectible, you write it off against the reserve instead of taking a sudden hit to your profit that month. This smooths out the financial impact and gives you a more honest picture of your margins.

Getting that reserve percentage right matters. Too low and you’re overstating your income. Too high and you’re being unnecessarily conservative. Review your actual write-off history quarterly and adjust the percentage based on what’s really happening with your customer base. A broker dealing mostly with large established shippers might be fine at 1%. One working with smaller or newer companies might need 3% or more.

Factoring is the most common workaround for brokers who want to get the credit risk off their books entirely. You sell your receivables to a factoring company at a discount, typically 1% to 5% of the invoice value. The factor pays you within a day or two and takes over collecting from the shipper. With non-recourse factoring, the factor absorbs the loss if the shipper doesn’t pay. Recourse factoring is cheaper but means you’re still on the hook if the customer defaults. Either way, factoring solves the cash flow timing gap and lets you pay carriers without waiting on shippers.

The trade-off with factoring is margin. If you’re running 12% to 18% gross margins on a load and giving up 3% to a factor, that’s a meaningful chunk of your profit. Some brokers factor everything and treat it as a cost of doing business. Others factor selectively, only selling receivables from customers they’re less confident about while holding invoices from their strongest accounts.

AR aging reports are your early warning system. Watch them weekly. A shipper that was paying in 30 days and starts stretching to 50 is telling you something. Follow up immediately. The longer a receivable ages past terms, the less likely you are to collect in full. Industry data consistently shows that once an invoice passes 90 days, the probability of collecting drops significantly.

Proper freight and logistics bookkeeping ties all of this together. Your books should clearly show gross receivables, the allowance for doubtful accounts, actual write-offs, and factoring fees as a separate line item so you can see the true cost of credit risk in your operation. Without that level of detail, you’re guessing at your real profitability.

If you’re a freight broker in the Bronx or anywhere in the NYC area and your books don’t currently track bad debt reserves or break out factoring costs, that’s something worth fixing now rather than at year end. Our Bronx bookkeeping services can help you set up the right accounts and processes so your financials reflect the credit risk you’re actually carrying.