This post is part 2 of a 3 part series explaining how to become a liquidation merchandise Broker. A Broker is someone who locates and then sells merchandise he does not own for a commission or markup. If you missed part one, no fear, you can read it here.
In the first part of our Broker series we reviewed how a Broker makes a profit selling pallets and truckloads of wholesale merchandise. In part 2 the world comes crashing down on the Broker as we discuss the pitfalls of this business. If you are thinking of becoming a liquidation broker pay attention and take notes because the following two nightmares just might change your mind.
Brokered transactions can go from good to bad within the blink of an eye! Here are a couple of reasons:
Commission based catastrophe – Working for a commission, a Broker brings a buyer together with a seller. If the seller fails to pay the Broker a prearranged commission, the broker is left out in the cold. The only way to recoup an unpaid Brokers commission in this example is to enter litigation with the seller. This option for recovery may not make financial sense for the Broker if the commission is small. It doesn’t make much sense to chase a few hundred dollars for the effort involved with fighting a small claims lawsuit, especially if the Broker and seller are transacting from different states.
Freight back-charging – Most wholesale buyers who work with liquidation Brokers do so because they do not know how to find direct sources for specific types of inventory. In addition to the inability to locate merchandise, wholesale buyers also rely upon a Broker’s freight knowledge because shipping large pallets and truckloads of merchandise is daunting for the new liquidation buyer. Wholesale buyers must factor in freight costs, so they request exact freight charges from the merchandise broker.
Freight costs are based upon several factors including weight, volume, and traveling distance. Due to the nature of brokering merchandise, a broker often will estimate the weight and volume of a load to be shipped. The Broker estimates shipping details to the freight company because the Broker is not in possession of the actual inventory to be shipped. Once a freight charge is agreed upon between the Broker and buyer, if that freight company re-rates the cost after shipping…the Broker is hard pressed to collect this up-charge from his buyer. A brokers profit can be quickly drained by freight back-charging.
The two scenarios above represent a couple of issues a Broker might have to deal with; unfortunately, there are other pitfalls which might be encountered. In the next part of this series I will discuss what’s needed to get a Liquidation broker business started.