I’m  sure that those of you that know me are shocked,  SHOCKED  at this week’s topic given my past comments regarding finance such as ” Finance, they know the cost of everything but the value of nothing”.

Many shippers talk of partnerships with suppliers( carriers) , being more strategic rather than tactical, asking carriers to bring shippers” ideas” how to improve efficiency, wanting to be a preferred shipped that is EZTDBW  ” easy to do business with”, looking at total delivered cost rather than just rates, elevating service and capacity, ” its not just about rates”, etc. BUT, shippers then turn around  and do yearly bids with the major focus on rate levels and then their finance department  wants to extend payment terms to 45, 60, 90 or more days.

Supply Chain Finance(SCF) cannot impact a shipper’s procurement strategies but it can be a win win for the carrier, shipper’s supply chain organization, and the shipper’s finance organization. Since the great recession of 2008, many buyers/shippers have extended payment terms to increase cash on hand and improve working capital. This negatively impacts a carrier’s cash flow which causes the carrier to tap into established lines of credit with their banks( that is if their bank even offers a line of credit with a reasonable interest rate). In its most basic form, SCF which is a form of asset based lending and reverse factoring,  allows a carrier to sell its invoices to a bank at a discount as soon as they are approved by the shipper. This then allows the shipper to pay the bank  on the official payment date( 45-60-90 days) and the carrier to get paid quicker(3 to 5 days). Since the bank is receiving payment from the shipper there is much less risk to the bank since in many cases the shipper has much better creditworthiness than a carrier. The discount rate depends on the shipper’s credit/D+B ratings,  not the carrier’s.

If shippers are truly concerned about shrinking trucking  capacity and competition among carriers, it makes little sense to squeeze carriers with requests for lower rates on one hand and extend payment terms on the other if  you want  carriers to  reinvest in drivers, equipment, and technology . Positive cash flow is the ” Mother’s Milk” of running a business of any size  but is especially critical to small to mid-size carriers.

Supply Chain Finance may not work in every case but if a shipper wants to be a better  PARTNER with their carriers,then  serious conversations  need to take place within a shipper’s supply chain, finance, bank, and freight payment provider to see if SCF is a viable option.

Joe Lombardo, NGNF    (nice guy no freight)

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