Will Your Trucking Company Get Paid? Assessing Credit Risk
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Fact-checked by: Bruce Sayer
One of the many advantages of working with a specialized invoice factoring company for the trucking industry includes access to a large database of credit information on existing and potential clients. Taking freight off a load board on an ongoing basis requires a certain degree of “gut feeling.” Without the proper tools, performing credit checks on new clients can be time consuming and costly. However, dispatchers who act on the spot without due diligence are taking credit risks that can prove far more costly for your trucking company. In this all too common of a scenario: loads are delivered, invoices issued and the uncertainty of the waiting game starts until you see payment.
Managing overall risk
Managing credit risk is a job that requires a certain degree of understanding and accurate credit monitoring. Trucking companies work very hard for their money and it is only fair that invoices get paid in a timely manner. Credit decisions without the proper due diligence can catch up with you and leave you in a difficult position. The following example illustrates this point:
XYZ Trucking has just secured a new customer that will keep 3 trucks on the road each week with long hauls to Los Angeles, California. A steady demand for fresh produce covers the back haul. This is an excellent opportunity for any trucking company. XYZ Trucking assigns its best equipment and drivers to the lane, committing all resources to ensure the reliable and safe delivery of goods. For the next 3 months deliveries are made, invoices are issued and drivers are paid out of XYZ Trucking’s own cash flow. The challenge is: the new customer has yet to pay any of its invoices and XYZ Trucking is facing a cash flow shortage. The issue is not that the new customer won’t pay; they are just notoriously slow payers despite XYZ’s ongoing efforts to collect.
Managing your trucking company’s credit risk
Your trucking company is extending credit every time you take on a load and issue an invoice. The trucking industry is well known for having customers that stretch out payments as a common business practice. In today’s economic environment, the average number of days it takes for your trucking company to collect on accounts receivable invoices can easily extend well past the comfort zone, placing undue strain on your cash flow. To minimize the potential financial risks your company faces, it is recommended to perform both upfront and ongoing credit checks using easily accessible and relevant information.
New clients should always complete a credit application and provide current credit references. Make sure you cross-reference the information; it is not uncommon for trucking companies to collect credit applications but fail to call the references. Most credit references will be from companies that have experienced a good working relationship with your potential customer. If your customer has trouble coming up with these references, it may be an early sign that the company has a poor credit history. Another approach would be to check the customer’s website for a list of clients, then call the respective accounting departments for references.
Run a credit report
Even if your potential new customer happily completes a credit application, it doesn’t mean they don’t have a few skeletons hiding in their “financial closet.” The most effective method to assess your customer’s ability to pay is to run a credit report. There are several fee-based options available to you providing different information at varying costs. Select a service that best meets your needs and budget.
Free access to credit searches
eCapital is a leading invoice factoring company that specializes in providing services for the trucking industry. To support our clients and the industry as a whole, eCapital provides unlimited and cost-free access to a “Credit Search” tool to assist your due diligence process. This search capability draws on a database of 1,000s of active companies specifically related to the trucking industry. Providing credit information on each of these companies and permitting free access to this information allows trucking companies to make informed decisions prior to taking on new customers. Supplying valuable information, providing trusted advice and assisting with business decisions is in keeping with eCapital’s overall philosophy: to make the lives of truck company owners easier.
Invoice factoring speeds up cash flow
Even with good credit, whether it is a new customer or an established relationship with a shipper, invoice payment can take weeks or even months to receive. In today’s economic conditions, some shippers are executing strategic policies to implement even longer payment policies in an effort to improve their own cash flow situation. This may improve the shipper’s cash position but places additional stress on the freight carrier’s or the freight broker’s cash flow.
To speed up cash flow, invoice factoring companies like eCapital provide funds within hours of issuing an invoice. Invoice factoring is considered a common business practice to ensure steady reliable access to cash for trucking companies that work with slow-paying customers. With low rates, excellent customer service, online monitoring of your accounts and convenient services, eCapital has quickly been established as a leading “go-to” financial lender to the trucking industry.
Funding over-the-road expenses for new customers
Often the financial limitations of a trucking company can prevent it from stretching to take on new business. The most difficult to plan for are the one-off loads from new customers acquired from load boards. When these loads become available it is a missed opportunity if your trucking company doesn’t have the working capital to cover the over-the-road expenses and therefore needs to give up the load to a competitor. To avoid this situation, eCapital provides fuel advances, an immediate advance of up to 50% of your load to cover the cost to deliver. Never turn down another load because you’re low on cash! Pay for fuel and any roadside expenses with the fastest and cheapest fuel advance program in the industry.
Ongoing protection
Gathering information and tracking your customer’s credit rating isn’t just something you do at the outset of a relationship. Ongoing monitoring will alert you of potential problems that may affect your customers’ ability to pay and help you avoid getting burned. eCapital provides ongoing protection with a dedicated Accounts Manager to maximize your cash flow and assist with credit risk management. Improved credit risk management is another good reason why so many trucking companies are turning to specialized invoice factoring companies for trucking as their financial partner.
For more information about assessing credit and invoice factoring, visit us online at eCapital.com
ABOUT eCapital
Since 2006, eCapital has been on a mission to change the way small to medium sized businesses access the funding they need to reach their goals. We know that to survive and thrive, businesses need financial flexibility to quickly respond to challenges and take advantage of opportunities, all in real time. Companies today need innovation guided by experience to unlock the potential of their assets to give better, faster access to the capital they require.
We’ve answered the call and have built a team of over 600 experts in asset evaluation, batch processing, customer support and fintech solutions. Together, we have created a funding model that features rapid approvals and processing, 24/7 access to funds and the freedom to use the money wherever and whenever it’s needed. This is the future of business funding, and it’s available today, at eCapital.
eCapital Corp
eCapital Corp. is committed to supporting small and middle-market companies in the United States, Canada, and the UK by accelerating their access to capital through financial solutions like invoice factoring, factoring lines of credit, asset-based lending and equipment refinancing. Headquartered in Miami, Florida, eCapital is an innovative leader in providing flexible, customized cash flow to businesses. For more information about eCapital, visit eCapital.com.