Big Risks and Big Rewards: Broker Factoring With ComFreight CEO

Broker factoring, chasing down shippers, and the journey from load board to fintech platform: On the latest episode of The FreightCaviar Podcast, we sit down with Steve Kochan, the CEO of ComFreight.

Steve shares the story behind ComFreight’s evolution, including why he made the pivot to factoring for freight brokerages. He also provides advice on how he would build a resilient trucking company in the face of financial downturns. Plus, we dive into the earnings potential of freight brokerages and what it takes to make it in this competitive industry.

How did ComFreight begin? 

In 2012, Steve Kochan founded ComFreight after facing the harsh reality of the inefficient and cumbersome load board systems used by small freight forwarders in Los Angeles. Having experienced the luxury of better technology and resources when he worked as an account manager and executive at C.H. Robinson, Steve recognized the challenges smaller companies faced. He took matters into his own hands and set out to create a more transparent, user-friendly load board. His goal was to build a website that simplified the overall bidding process.

“We really focused on our website, so it didn’t force a reverse auction, which prevented a race to the bottom. Instead, you could counterbid and communicate directly with others through the website’s messaging system.”

It took years of bootstrapping and learning how to start a real business before receiving any interest from investors. However, in 2017, the first investment came through, propelling the company from Steve’s apartment into real success. 

With those funds, the company expanded into factoring before pivoting again into payments and full-fledged fintech. Yet, despite the growth and evolution of the business, ComFreight kept some of the original features, such as the ability to message within the website, which illustrates their commitment to making the bidding process transparent and user-friendly.

A Timeline: ComFreight’s Pivot to Broker Factoring 

2012: Gets the idea for the load board project and designs the logo. 

2013: Registers the ComFreight name and officially becomes a business. 

2015: ComFreight’s load board website gainst attention after Steve experiments with press releases, and people start noticing the platform. He’s approached with an offer from some folks in Canada, which he ends up turning down. 

2016: Convoy and CargoMatic raise significant funding around this time, and digital freight brokering becomes a more venture-backable project. This calls attention to freight tech as a whole. Around this time, ComFreight has a couple of thousand paying subscribers and was bringing in a revenue of about 30,000 per month. 

2016 – early 2017: Gathers feedback from users about them feeling forced to work with old-school factoring companies due to a lack of options, Steve decides to address the credit and payments challenges. 

2017: ComFreight raises venture funding from angel investors to develop their factoring service and become a hub for financial decisions and payment processing solutions for the mid-market of the industry. 

2018 – 2019: ComFreight keeps the load board while developing the factoring service. Eventually, the factoring revenue exceeds the subscription revenue. They end a partnership with a third-party factoring company and begin doing it all on their own. 

2020: They open up more load board features for free and later move into broker factoring pretty heavily.

What sets ComFreight apart in the Factoring Industry?

ComFreight expanded into offering broker factoring in 2020. Having brokers as clients gives them a unique perspective. They can see who their shippers are and what they pay.

“It’s kind of an interesting place to be because when you do have that insight, you can actually almost be de-risking the business even more because you know who the broker’s end customer is now, not just how that broker is representing themselves to be,” Steve explains. 

So are brokers really making insane profit margins? “Brokers are not doing a fifty percent profit margin. I can say that we have not seen anybody do that. But here’s one other thing: some brokers also take it on the nose to keep the customer happy. We account for that in our software.”

ComFreight is a technology company and has never been a freight brokerage or a carrier, and they take data and objectivity seriously. As a financial partner, ComFreight is not competing with its clients. This is important to note since some companies are owned by carriers that compete with their clients while financing them and getting access to a lot of data. 

“It’s good to be conscious of what kind of business they’re running and what data rights they may have or that you may have signed off on,” Steve warns. 

“We take our broker clients’ privacy seriously and even in our software, down to the exact way they want us to bill and how much they want to be involved in billing, all that’s built into the system. Including how private we are with any data they provide into the system.” 

Chasing Down the Money from Shippers

Working with shippers can be challenging when it comes to payments. But, as Steve explains, his company has developed a proprietary process for invoicing shippers that has been fine-tuned over the years. This process involves digital invoicing and email reminders managed through their own software. The software can set special rules and terms, even down to specific shipper accounts, to help automate the invoicing process and make it as efficient as possible. This helps to minimize delays and reduce the company’s days to pay, which is critical for maintaining profitability.

Sure, some shippers may delay payment or make excuses. Steve and his team have found ways to code these issues into their software. That way, the invoicing process is as close to the way the shipper desires. By leveraging their software, they can also manage the credit risk associated with each shipper. This is critical for mitigating potential losses.

Shippers may sometimes need to extend payment terms beyond what is typical, such as 120 days. Steve’s company has experimented with ways to still finance these transactions at a slightly different rate. This allows them to be more flexible while still pricing their risk and making a little money on the extended payment period.

Overall, the goal is to scale the business while still maintaining profitability. This means being flexible with payment terms while managing risk and ensuring timely payments. Need cash flow faster? They can switch the toggle on that transaction or set of transactions, and ComFreight will advance their margin in one day. This flexibility level helps brokers manage their cash flow needs while maintaining a profitable business for Steve’s company.

Is Broker Factoring Risky Business? 

ComFreight offers non-recourse factoring, which means they take on the risk of a shipper’s credit. So they won’t come after their customers if a shipper goes belly up or has credit issues. Sounds like a win-win, right? But they’re not fools. ComFreight relies on its proprietary software to assess a shipper’s creditworthiness to avoid too much danger. And they’re quick to let their customers know if there are any changes to a shipper’s credit status. No hidden fees or extra interest to worry about here. And don’t worry, their loss rates from bad debt are way better than traditional lending companies.

“I think the big takeaway for our customers is once you hit the button on the transaction, if the money has left their account, it’s your money.” 

how does ComFreight avoid getting burned By Shippers?

Well, they check the credit scores of shippers from various business credit agencies and transportation-related platforms. They also look into lean filings and audit and financial statements from customers, especially when working with new brokers or shippers. Like bigger and more sophisticated 3PLs, ComFreight gives enough credit to shippers to prove they’re worth it without risking everything they’ve got.

So what if a shipper doesn’t pay? This is pretty rare, Steve says. “We have such good relationships with our brokers. We’ve had some offers to go ride by the shipper saying, ‘I’ll help you guys get that money,’” he jokes. 

In most cases, they are able to resolve any issues with payments through their accounts receivable and collection process. However, in some rare cases, particularly with smaller or more obscure shippers, they may need to hand off collections to a specialty law firm. While these law firms will take a share of any collected funds, they have been successful in collecting payments that Steve thought were write-offs.

Many finance and factoring companies factor in a certain loss rate as part of running their business. While ComFreight’s threshold for loss is a bit lower, they still evaluate creditworthiness thoroughly. They encourage shippers and brokers to get pre-approved for credit lines before making any decisions. They work with brokers to send all their existing and potential customers for pre-approval. So, they may eat some of the cost, but it allows for better limits and approval percentages, and eliminates the worry of chargebacks.

To hear more about the journey of ComFreight and get valuable advice for brokers and carriers alike, check out the full episode on FreightCaviar’s Youtube or Spotify channels. Keep following the FreightCaviar blog for the latest updates.