Good Terms Can Prevent Bad Debts
By Henry E. Seaton

September 1999
Reprinted from

Interstate trucking is the only commercial enterprise in which a business owner extends thousands of dollars in credit to a stranger. Even Wal-Mart requires a credit card or cash to buy a $14 shirt, yet most small fleets will extend credit for freight charges to anyone just to get a backhaul and never think about imposing credit and collection provisions.

While extending an interest-free loan to their customers, some small carriers must pay factors as much as 3 to 5 percent just to maintain adequate cash flow. There is no substitute for making good credit decisions or for staying on top of collections, but enforceable credit and collection terms can help.

Obviously, a slow-paying customer is more likely to pay a vendor who charges late fees and collection penalties than one that has no such leverage. The carrier without credit and collection provisions in its contracts and tariffs is the one most likely to be paid late, if at all. Under our illogical bankruptcy laws, the carrier that was paid the slowest is the one most liable to repay to the estate what little it received as a preference.

All too often, shippers or brokers withhold payment of freight charges because of an unliquidated cargo claim. (Responsible shippers and brokers should not offset claims against freight charges, but many do.) Without enforceable credit and collection provisions, you may be forced to accept your losses, as attorney fees can be costly.

So it’s important to ensure that you have included proper credit and collection provisions in your tariffs and contracts. To do this, learn the regulations and use them to check your credit policies:

*The credit regulations apply unless waived in writing.
*Formal extension of credit is necessary to relinquish possession of freight in advance of payment.
*You may choose and publish a stated credit period of no more than 30 calendar days. Unless otherwise published, freight charges are due within 15 days of receipt.
*The credit period begins the day following presentation of the freight bill.
*You may, in your private tariffs, establish service charges for late payment with notice to the shipper. Inform the shipper that the purpose of the credit provision is to prevent the free use of funds due to the carrier and that you don’t sanction payment delay. Also inform the shipper that despite the credit-charge provision, failure to make payment within the credit limit will require you to reevaluate the extension of credit.
*Collection charges can be assessed based on a rule that discloses the exact amount of the charges. (A specific percentage, a fixed amount or a waiver of discount is acceptable.)
*The regulation expressly authorizes minimum charges.
*You cannot apply collection fees and charges when payment is late due to administrative error, nonreceipt of invoice, etc.
*You must issue a revised freight bill or notice of imposition of collection-expense charges for late payment within 90 days after the expiration of the authorized credit period. Each invoice must include language that states: “Failure to pay freight charges timely may result in tariff penalties,” or words of similar import. Invoices should also note the payment due date and any applicable interest or collection terms.

The rules give you important legal contractual rights. But to ensure those rights, you must have proper tariff provisions, include proper notice on freight bills and contracts, and issue past-due invoices on a timely basis, showing application of the credit provisions.

You are free to set your credit and collection provisions at any level you choose. The amounts should be sufficient to deter late payment, yet within the realm of reasonableness.
(703) 573-0700
Copyright© 2006 Law Office of Seaton & Husk, LP. All rights reserved.