How Bad Is Slow Paying, Really!
It may have been J.P
It may have been J.P. Morgan who said that no bad company ever pays fast. He might well have talked about the trucking industry where slow pay is about as common as apples in an apple orchard. If you want to raise a trucker's blood pressure, tell them that they are going to have to wait sixty days to get paid on a load. They will be upset for several reasons. First of all, they have to pay most of their expenses up front, including fuel. Secondly, they know that slow pay is sometimes a warning sign that the company has cash flow issues and might go out of business.To say that truckers are obsessed with how fast customers pay their freight invoices is an understatement. In this article we are going to talk about freight payment terms and what it usually means when an invoice is paid faster or slower than the industry average.
Freight invoices are paid on an average of 33 days in this country. That is from the time that the invoice is mailed until payment is received. Subtracting 3 or 4 days for mail time and you are looking at an average of 30-day pay for shippers and brokers. Looking at some well-known brokers on the RTS Credit website we see that C. H. Robinson paid sixteen thousand invoices in 31 days. Gold Star, out of Overland Park, Ks. paid eleven hundred and thirty-one freight invoices in 18 days, while Bear Transportation Services out of Dallas, TX paid over three thousand freight invoices in 23 days. The point is that companies who pay in less than 33 days are utilizing their own cash and not someone else's to pay the freight invoice. That is often an indication of their credit strength and business savvy.
Clearly, a number of shippers and brokers know the importance of fast pay to a carrier. In the last 16 months many of these companies have set up quick-pay programs which allow the carrier's invoice to be paid immediately with accompanying discounts ranging from one to three percent the value of the invoice. We have seen other companies pay carriers immediately without a discount to improve their availability of equipment. Whatever the reason, it is clear that many shippers and brokers who pay faster than the norm have seen greater levels of service and loyalty amongst their carrier friends, and consequently, more profit opportunities.
Slow pay, on the other hand, is a thorny issue. There are probably as many reasons for slow pay as there are slow payers. Whatever the reason, the impact is clear. Slow pay means that the customer asks you, the carrier, to accept payment terms that is below average. This is interesting because most brokers and shippers know the way they treat the carrier will significantly impact loyalty and service. Generally speaking, when a shipper or broker uses you as their bank, they are either unable to pay faster because of financial limitations, or they view transportation as a commodity, not a service.
Maybe that is the heart of the matter. Is transportation about relationships and service? Or is it a commodity, like a bushel of corn, to be bought and sold? The RTS Credit (www.rtscredit.com) guide lets you see how fast many brokers and shippers pay their freight invoices. We even attach a credit rating and recommend that you only haul for the A, B or C rated customers. With RTS Credit, that is a given. But once you know how fast you are going to get paid, then you need to decide what kind of customers you want to haul for.
If you were sitting across the desk from me now, I feel confident that you would say I want to haul for a company that pays decent rates in a timely fashion. I want to haul for a company that believes that trucking is more than just a commodity business, that it is a business of relationships, trust and
service. Bottom line."
The availability of freight usually slackens around the first of the year. Be sure to tell your customers how much you appreciate them. And remember, watch those receivables.
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