It’s a scenario that happens all too often: finally invoicing a customer for a delivered load only to not get paid on time or, even worse, to not get paid at all. This continues to be a significant burden on both truck drivers and fleets. Instead of spending your valuable time building your business, establishing relationships with brokers and shippers, and maximizing your roll time delivering loads, a large chunk of your time is now spent chasing down unpaid accounts and dealing with the additional stress associated with not having enough cash flow.
This underscores the importance of performing routine credit checks on all your new and existing brokers and shippers. If credit checks can safeguard your trucking company from bad debt, delinquent payments and untrustworthy customers, it just makes good business sense to do them.
Mitigate Risks with Credit Checks
As an invoice factoring company, we know exactly how competitive the freight market is and how finding loads is critical to business survival. Acting quickly to secure loads means credit checks are often a secondary priority. But, not doing so puts you at risk. Performing upfront credit checks for new customers and regular credit checks for existing ones, is how you can mitigate your risk and ensure you get paid in a timely manner. Just because a company is large and reputable doesn’t mean their credit history is clean. Cash flow is predicated not only on delivering loads regularly, but also on being paid in a timely manner.
Ask Questions and Learn About Your Prospective Customers
Anytime you meet a new broker or shipper, ask these basic questions to check for risk and get a sense of their business practices:
- How long have they been in business?
- How are they going to pay you?
- Do they have references they’re willing to share?
Connect with your colleagues to see if they’ve ever done business with your prospective new customer and ask the following:
- How is the broker or shipper’s customer service?
- Do you get resolution on your issues or questions quickly?
- Do they answer the phones promptly or respond back to emails on the same day?
- Do they have an easy-to-navigate and user-friendly website?
It goes without saying that brokers and shippers that make customer service a priority are much more likely to be great partners.
Do Credit Checks Through a Third Party
Once you’ve done your own basic due diligence by speaking to colleagues and asking questions, you should move onto running a free credit check through FactorsNetwork or sign up with 123LoadBoard. Using a third-party credit reporting service can help you check the broker or shipper’s credit rating, days-to-pay information, and debt summary -- all extremely useful data to help you make informed decisions about the organizations you do business with.
Understanding the Realities of Doing Business
Some trucking companies have yet to realize that not doing a credit check right from the get-go means that you are now assuming the risk of potentially not getting paid for a load you’ve already delivered. Remember, the goal here is to get a snapshot into how the new or existing customer will handle paying your freight invoices.
Performing your due diligence and tracking your customer’s credit rating over time is not just something that is done at the beginning of a relationship. Ongoing monitoring will notify you of potential problems that could affect your customers’ ability to pay and help you avoid suffering the consequences of not getting paid. In addition to doing regular credit checks, monitoring your days sales outstanding (DSO) and having a clear idea of the average number of days it takes your trucking company to collect payment are crucial to mitigating risk and protecting the financial stability of your business.
Do you do regular credit checks of your customers? Tell us in the comments below?