Receive Discounts By Paying Vendors Sooner
It’s important for trucking companies to pay vendors in a timely manner including Federal and State Taxes. For some reason the IRS are most insistent that they hold the number one position on your vendor list.
Late payments can incur additional fees, loss of discounts and even higher interest rates on credit cards. All of these additional charges come straight off the bottom line to reduce profit margin.
Continued late payments may cause vendors to review their payment terms or stop extending credit and even insist on advanced payment or cash on delivery.
Late payments can also lead to derogatory marks that reduce your business credit score. Maintaining and improving a business credit score should be a priority for any trucking company. Having a strong credit rating can benefit your trucking company is several areas. New vendors and finance companies will review it to determine whether or not the company is worthy of credit being extended.
Potential clients may also “run credit” to make sure the trucking company is financially stable.
In most cases trucking companies do not or cannot pay bills until clients pay their freight invoices. If clients do not pay for 30, 60 or even 90 days it creates a cash flow problem for the trucking company.
Based on a survey of freight carriers and third-party logistics companies conducted by the Transportation Revenue Management Group of the National Association of Credit Management freight invoice payment is made, on average, in 37 days. Some larger clients may “ask” to make payment as far out as 120 days. Although it appears they are “asking” in fact they actually you that are going to take 120 days.
In essence slow paying clients are forcing trucking companies to accept either discounts on invoices paid within a shorter payment cycle or absorb additional expenses associated with extending credit to customers.
It’s a vicious circle. You have performed the delivery perfectly, with no complaints, and incurred all the expenses involved in providing the service but still the client is slow to pay. Why are they slow to pay? It’s not that they can’t afford it, instead they are using your money to conserve their own cash flow situation.
Large clients feel they can use freight volume as leverage for better terms. For instance Procter & Gamble changed their payment terms from 75 days to 120 days while Kellogg Co. Anheuser-Busch and Kraft-Heinz have already implemented a 120-day payment program. They know they have you between a rock and a hard place because there’s always another trucking company that would be more than happy to take your spot.
A few years back I handled a marketing project for a very large, well known, hotel chain. When they finally paid something told me to verify funds on the check at their bank. I was told the check would not clear that day and the hotel chain had a zero balance in their checking account! My chin hit floor.
The bank manager was kind enough to explain the hotel’s banking procedure. He advised that although the check would not clear immediately, but to go ahead and deposit the check anyway as it would clear the following day. How could that be? The hotel kept all their funds in an interest bearing account and would transfer money automatically over to the checking account to cover checks that hit the bank every day. On reflection that’s a shrewd move on the hotel’s part.
Could your clients be earning interest using your money like the hotel chain? Maybe. In the meantime payables are mounting up and you are quietly losing money.
As indicated, paying vendors in a timely manner improves both credit rating and your company’s credibility with suppliers. Unfortunately you can’t pay vendors if your money is still sitting in the client’s bank account.
After I have painted a dreary picture, be assured all is not lost. There is a fast solution known as factoring for trucking companies. Factoring outstanding freight invoices immediately unlocks your cash that is tied up in the receivables. With factoring you no longer have to wait up to 120 days for payment, instead funds will be in your bank account in 24 hours!
Factoring now becomes an extremely beneficial cash flow tool that allows you run operations much smoother and say a permanent “goodbye” to stress created by financial problems.
Now you are in a financial position to make all vendor payments on time and in full. What a relief! You’re also in a position to say “hello” to discounts from vendors for early payment, even asking for a deeper discount that originally offered.
If they don’t offer a discount you could always ask for one. Who knows they may have a cash flow problem too and re-think their payment strategy.
As a fast payer, your trucking company will become one that vendors want to do business with rather than tolerate. For example, if you need an urgent delivery of supplies, vendors will go out of their way to accommodate you.
The vendor sales reps will love you too because they get their commission paid sooner. This works to your advantage, as the reps will want to assist you too. All because you have a better cash flow!