-This post from June 2016 has been updated-
How much do you know about your brokers and shippers before you haul the first load? Do you know how long they take to pay other carriers and even if they pay them? In trucking, working with qualified, stable, and established brokers and shippers is critical. Doing your due diligence before you haul the first load can save you a lot of potential headaches from wondering if you will be paid for the loads you haul. There are several steps you can take to ensure you are working with established brokers and shippers from a simple Internet search to an essential credit check.
What does a small trucking business do when the freight has been delivered, and they have paid all their expenses (fuel, equipment, payroll, maintenance, etc.) only to find they are the ones on the short end and not being paid? Working with qualified clients is imperative to your success, and performing credit checks can help. A credit check can be completed on a person or a business and will provide invaluable information for you to evaluate a potential or existing client.
One benefit of a credit check is it will give you information on how long the broker or shipper has been in business and how much business they conduct. This is important because it is not hard to start a freight brokerage, and many people have tried and failed for various reasons. This reason alone makes it critical you performed a credit check on shippers and brokers from the beginning. Without doing a credit check from the start, the carrier takes a considerable risk of possibly not getting paid for the load they have already hauled.
In addition to the amount of time a business has been around a business credit report will give you the businesses risk score, average days it takes them to pay and their debt summary. These three pieces of information will provide you with a good picture of how they will handle paying your freight bills. With all this information, you will be able to make an informed decision regarding the loads you haul and reduce your risk of not being paid.
There are many different services that allow you to pull your client’s credit reports, and they all charge various fees. The largest most well-known companies include Dun & Bradstreet, Equifax, Experian, and TransUnion. In addition to subscribing to these services, trucking companies could consider working with financial partners, such as Tetra Capital, that offer the checks for no additional charge. For example, a factoring company like Tetra Capital will check the credit of your brokers and shippers because they use this to analyze your financing options.
Obviously, there are still risks in hauling freight for someone you don’t know; however, in this business, past history is a pretty good indication of future performance. Very rarely does a company with a high credit rating all of a sudden go out of business. What generally happens is their days to pay will continue to move upward as they struggle to pay their bills. Then finally one day they can’t drag it out any longer, and they go out of business. During this process, the credit rating will typically decline.
Credible and established finance companies that specialize in the trucking industry like Tetra Capital will also have access to several other options to check credit before their client hauls the load. Additionally, Tetra Capital has a huge internal database filled with payment history for thousands of brokers and shippers. All of this can help to protect you and your trucking company and assist in getting you paid for the loads you haul.
One thing I have learned from my many years in transportation is that I would never run freight without knowing the likelihood I would be paid. Unfortunately, many smaller trucking companies do not have the means to have access to numerous databases we have. The good news for them is by partnering with the right finance partner they will have access to this critical data and be able to quickly and inexpensively perform the much-needed credit checks.