Moving Words – A/R
Timothy Brady
“Success is getting what you want. Happiness is wanting what you get.” – Dale Carnegie
The very best A/R financing is to have your moving business fully capitalized so you can afford to do your own financing. But here are a few different ideas on ensuring your cash flow needs aren’t controlled by your unpaid receivables.
- You may say, “If I have cash in the bank to operate while I’m waiting for my receivables to be paid, I’m not financing my A/R.” That’s not true. What you are doing is extending credit to customers who wait beyond the point their shipments are delivered to pay for your services. Any time a customer doesn’t pay FOB or at least COD, even for a single day, you’ve become his banker by extending him credit. And if you aren’t charging him interest for using your money, you’ll be fighting constantly to have operating cash–plus your profit margin will drop. Instead, when you price your loads, include in your hauling rate the cost of the money you’ll be lending that customer for his usual period of delayed payment. Base this cost on what you could make on that money if you had it available during the same period.
- If you’re not capitalized, get a line of credit from a bank to finance your customers who take their time paying their invoices. If they want to pay within fifteen days of delivery, you can give them a discount off their shipping invoice that is priced at a rate covering the interest for 60 days. The sooner a customer pays, the lower their total bill. Moreover, if they wait to pay more than 60 days, tack on additional interest on for each day it’s late. If they consistently pay their freight bills late, you need to charge them a fee for being their banker.
- Use a factor to do both financing methods mentioned above, and design the program the same way: if the shipper pays his invoice in under 15 days, rebate back a discount. Increase rates based on what the factoring costs, then discount when they pay early.
In other words, if you’re going to act like a banker to your customers, charge them for the service. - What’s best about using a system of discounting from a higher hauling rate is that the customers who pay quickly are rewarded. And to be honest, if a customer pays in less than 15 days, if you are factoring your A/Rs, don’t factor that customer’s invoices. Charge them a minimal “factoring fee” for a quick pay. A customer who pays COD or FOB will get the highest rate discount because they aren’t using any of your money.
The long-term solution: charge the customer an additional amount if they want you to play banker for them. In addition, my recommendation is, if you’re factoring, charge the shipper 1% above what the factor is charging you. Yes, it takes some guts to stand up to your customers and price your rates high enough to cover A/R costs. But giving shippers who pay quickly a discount makes them happy – moving them onto the ‘Preferred Shippers’ list.
“Never spend your money before you have earned it.” – Thomas Jefferson
