Great explanation by @PPDCT. One value point I would add, we essentially act as a credit line for many of those shippers. Most shippers request net 30 terms (sometimes 45 or 60 days), and whatever their payment terms are, they usually take a little longer to pay. Most trucking companies want to get paid within 7 days, and can't afford to wait that long for payment. So the broker pays quickly and then has an AR team that works with customers to get paid.
Like @PPDCT mentioned, it really does vary quite a bit. Some of the large brokerages are publicly traded so you can see their actual margin % in their quarterly financials. I believe the sweet spot for a successful brokerage is somewhere between 13-17%, but one account might run at 8% and another might run at 25%. It all depends on the business, how easy it is to transact, how risky it is, etc.
Exactly this. Taking a lot of easy to book van loads at low margin is different than taking, say a coast to coast crawler crane project. The margin percentages should likely reflect differently, simply based on risk of stuff going wrong.
That's also a point I should've added, yeah- and apparently missed along the way. We float a *ton* of payments while waiting on the receivables, some of which can take *quite* a while to get ahold of.
If a customer fails to pay the brokerage company, do you as the broker get financially impacted and have to pay back commissions? I am assuming you get paid out prior to the company receiving payment.
That depends on how onerous the brokerage's commission policy is. I know some have that, and some won't pay commission until the receivables are in.
