Don't Be Left Crying in Your Beer
In tough times, shippers may try for the moon
By Henry E. Seaton
Reprinted from etrucker.com
Q Several months ago, we responded to a major brewery’s request for bids that contained 30-day payment terms. Last week, we received a letter that said payment terms for all suppliers would be changed to the next 120 days, and unless we accepted the revised terms, our bid would not be considered. What options do we have?
A Just say “No.” You do not have to haul their freight, and you do not have to drink their beer. Since no contract has been awarded, the shipper is not required to award you the traffic based upon the bid you submitted, but likewise it cannot bind you to the terms of your submission and change the credit terms unilaterally unless you acquiesce.
During the days of regulation, payment terms for common carriers were net 15 days, and regulations still support this time limit (see 49 C.F.R. 377). By tariff and contract, most carriers now extend 30-day payment terms, yet giving a shipper 120 days to pay invoices is unreasonable. If you are forced to factor your receivables, your factoring costs alone easily can exceed your profit. Beer sales may be fairly recession-proof, but in my opinion, no vendor can assume an unsecured 120-day credit risk. Carriers are not “too big to fail,” and there will be no TARP bailout for you in the event of shipper insolvency.
While I am aware of no legal prohibition that keeps a shipper from demanding excessive payment terms under the circumstances you outline, I view this request as outrageous. I would be surprised to learn that even in these hard times that any sophisticated credit manager would accept these terms on a take-it-or-leave-it basis.
As I have written before, motor carriers are general unsecured creditors who can ill-afford to be lax in the extension of credit. If anything, the old term “cash and carry” should be a carrier’s credit posture, not the extension of four-month interest-free loans.
Since I received this question, I have heard from two other suppliers for this shipper; one never received a cram-down notice, and the other one just objected and negotiated a more reasonable term.