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The importance of credit checks


There is very little in the trucking business that is more frustrating than invoicing a customer for a delivered load and then not getting paid in time, or worse, not getting paid at all. This causes significant financial burden; whether from the additional time and resources spent in chasing the unpaid account or from the undue stress it places on your company’s cash flow. Few business owners understand the importance of performing simple customer credit checks and how easily it can guard your trucking company from delinquent payments and bad debt.

Credit Checks, Risk Management

Use credit checks to minimize risk 

As the owner of an invoice factoring company, I see this same situation occur repeatedly throughout the trucking industry; active carriers, busy hauling loads yet struggling to attain financial success. In my experience, I have learned that it is often the result of poor credit management that leads to a carrier’s financial hardship. Due to the highly competitive nature of freight transportation and the need to maximize equipment utilization, the hunt for both outbound and inbound loads is a constant challenge. The established use of load boards to meet this demand and the sense of urgency to acquire new customers frequently leads trucking companies to act expediently to secure loads without doing credit checks.

Every time your trucking company takes on a load and issues an invoice with terms, you are in fact extending credit to that customer. To minimize the potential financial risk, I highly recommend performing both upfront and ongoing credit checks on new and existing customers. After all, you wouldn’t lend money to a stranger on the street . . . why would you lend your company’s hard earned money to a stranger in business?

Be cautious when taking on new customers

New customers should always complete a credit application and provide current credit references. If the potential customer has trouble providing these references, it may be an early warning that the company has poor credit history. Another approach is to refer to the potential customer’s website for a list of clients, then contact the respective accounting departments for references.

The prospect of landing a lucrative contract with a big shipper is normally cause for excitement. However, take care not to fall victim to a common misconception that large corporations and established brands automatically ensure good paying customers. It is often these seemingly “Golden Gooses” that take the longest to pay. Large organizations can have corporate policies that dictate 60 or 90 days for account payables. Although the business is good, the negative impact of lengthy pay periods on your cash flow can be damaging.

Days Sales Outstanding

Healthy cash flow is of vital importance to your trucking company. Due to the intense capital expenditure needed to sustain operations, reliable access to working capital is essential. The aging of accounts receivable is a common challenge to most carriers and one that needs to be monitored and controlled. Days Sales Outstanding (DSO), is a measure of the average payment days of your customers. This metric is vital in determining the financial health of your trucking company and just as importantly, the financial health of your customers. Your company’s DSO should not exceed the credit terms you extend to your customers by more than a third to a half. If your terms are 30 days, an acceptable DSO would be 40 to 45 days. If it greatly exceeds this level, immediate measures must be taken to collect payments. Pay particular attention to those customers that are constantly late and their time to pay is increasing. This is a definite sign of a troubled account and one that could lead to default. Calculating DSO is a simple equation and needs to be assessed on an ongoing basis to help prevent unnecessary credit risks.

Free credit search tool

Whether it’s a large account or a single load acquired from a load board, you need to protect your company against bad debt. Despite the time and cost needed to perform the required credit checks, managing credit risk is critically important. Making informed decisions when accepting new business is the key to mitigating risk. Accutrac Capital is an invoice factoring company specializing in the trucking space. To best serve the interests of the industry, a credit search tool is offered free to registered users on our company website. Performing credit checks with this essential tool is simple and quickly provides average days to pay and credit ratings on thousands of shippers listed in the database. Use of this online tool is unlimited (use as often as you need), informative and best of all . . . its free! To register, simply provide your name, company name and email address.

Performing due diligence and tracking your customer’s credit rating is not just something you do at the onset of a relationship. Ongoing monitoring will alert you of potential problems that may affect your customers’ ability to pay and help you avoid getting “burned”. Performing regular credit checks, monitoring your company’s DSO on a regular basis and taking appropriate action is best practice to mitigate risk and to protect the financial stability of your business.

For more information on financial options for the trucking industry, visit Accutrac Capital online or call: 855-790-0906.


Charles Sheppard

Charles Sheppard

Charles Sheppard is the co-founder and President of Accutrac Capital, an industry leading invoice factoring company specializing in the trucking space. Charles oversees the daily responsibilities of sales & marketing, back office operations and portfolio management. Prior to starting the company, Charles Sheppard accumulated 15 years of accounting and financial services experience including 6 years at the senior management level within the trucking industry. Together with his partner Ken Judd, they share over 40 years in the trucking space, including hands-on experience managing, owning and operating successful trucking companies. Charles’ intimate knowledge of financial and accounting issues, especially as it relates to the transportation industry combined with a close association with industry experts affords him unique insights and valuable perspectives for truck company owners seeking to maximize profitability.
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1 Comment » for The importance of credit checks
  1. Ulrich Seufert says:

    While I agree that creditworthiness is important, I wouldn’t go so far as to require a potential customer to complete a credit check for a couple of reasons. First and foremost, it doesn’t flow well with the sales process…i.e. we’re effectively saying “we want your business but whoa wait a minute.. lets make sure about that!”. Second, anyone, even a deadbeat shipper, can come up with a handful of decent references. Just because those three or four references got paid on time doesn’t mean YOU will be paid on time or at all. The best way to go about it is to check the shippers’ creditworthiness with a credit reporting agency. If they do any shipping they will have current and former suppliers reporting in days to pay anonymously. Although these credit reporting agencies aren’t 100% accurate and foolproof either, you’re getting a bigger sampling (not just three or four reports) over a longer period. And you’re checking their credit without potentially putting off your new customer. Personally I check credit before the inital sales call.. If their credit is sketchy I don’t proceed. In this day and age all of that info is available from a number of sites for a nominal fee and well worth the investment.

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