Good Terms Can
Prevent Bad Debts
By Henry E. Seaton
Reprinted from etrucker.com
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.
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
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.
its 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:
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
*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 dont 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
*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.