Carriers Miss Out On Revenue Due To Long Payment Terms

By Bibby Financial Services

30 May 2019

Even as technology and integrated systems are reducing the timeframes for freight payments by streamlining invoicing and processing of payments, the economics of the trucking industry are driving increased payment terms.

Extended payment timeframes that stretch from 60 to 120 days make managing cash flow and collecting on invoices more complex and time-consuming than ever before. Companies with limited administrative overhead may have to hire additional back-office personnel or refuse loads altogether that have longer payment terms. Drivers need to be paid quickly and the cash flow pressure can mount even if only one large invoice runs late.

Competition Driving Long Payment Terms

The Bibby Financial Services US Trucking Trends Report 2019 identified that trucking companies are seeing the payment timeframes for loads increase significantly. 43% of carriers report that clients have been taking longer to pay over the last 3 years.  Further, customers are requesting longer payment terms that many trucking businesses cannot accept.  44% report that they had to turn down loads in the last 12 months as the requested payment terms were too long. Intensifying competition seems to be the force fueling long payment terms. 52% of transportation businesses feel that they are under threat from new and emerging companies in 2018, with 55% reporting that customers  asked for price reductions last year.

As 2019 continues, the risks will give way to established companies looking to maintain position as demand decreases. Larger fleets are more selective of the loads they take than smaller fleets, with fleets larger than five trucks being more likely to walk away from a slow paying load than owner-operators with 1-4 trucks. Carriers who turned down loads because of  long payment timeframes, on average estimate that they missed out on $190,000 in revenue.

Planning For Change In Demand

Some experts in the industry are already predicting decreased demand for 2019. Planning for shifts in demand, new tariffs in the trade war or other changes will help mitigate the risk to your cash flow. Here are three key tips to plan for change in 2019:

  1. As competition intensifies and trucking companies have to extend their payment terms to retain customers, alternative financing partners can provide a solution to ensure that trucking companies can take loads and get paid on time. This helps transportation companies retain drivers through a period of reduced demand.
  2. Maintaining adequate cash reserves and having contingency plans in place to deal with a downturn in demand helps mitigate the ups and downs of a volatile economy. Ideally, accounting for your monthly cash obligations, you want 3 months of operating capital set aside for an unexpected turn in the economy or an unexpected expense. Contingency funds help businesses by ensuring they don’t have to rely on credit for unforeseen expenses.
  3. Load sourcing and optimization platforms help trucking companies not only find loads but make tactical decisions on what loads will be the most profitable. Load sourcing and optimization technology is becoming more standard for the industry with 20% of trucking companies BFS surveyed saying that they plan to implement the technology in the next 12 – 24 months.

Bibby Transportation Finance has a range of flexible products and services to provide cash when you need it, discounts on fuel and back-end business support that allows you to spend more time developing your business. Check out our Frequently Asked Questions for transportation finance and reach out to the Bibby Transportation Finance team to discuss the advantages that factoring will have for your fleet, or you can call us at 877.882.4229 to learn more.


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