Ryan Chan
Ryan Chan is CEO and Founder at UpKeep Maintenance Management. He is a Chemical Engineer from UC Berkeley and was named one of Forbes 30 Under 30 for Manufacturing in 2018. Ryan started UpKeep out of passion and frustration by the lack of mobility in today’s maintenance management software. UpKeep has now been deployed to over 1,000 businesses and is a leader in mobile-first maintenance management software.
Although the most common net payment term for freight companies is net 30 days, this is lengthening in some industries due to various factors. Some companies also offer discounts for early payment, or may even operate on a cash-on-delivery basis. Here are some different payment terms found on purchase orders that are common in the shipping industry, as well as trends to watch.
Net 30 Details
As one of the most common payment terms, Net 30 is important to understand in the freight and shipping industry. Customers agreeing to these terms promise to pay an outstanding invoice within 30 days including shipping times.
Net 30 allows a customer to schedule shipping and freight services, without having to pay for them immediately. Just like the majority of consumers rely on credit cards to extend short-term credit, your freight clients may be more likely to select your business if they have more time to pay.
A downside, however, is that you will have to deliver services, without receiving compensation immediately. As long as you have a steady ongoing cash flow, this may not cause a significant issue for trucking companies
Shorter Terms
From the perspective of a freight provider, you’d want your money as soon as possible. As a result, you may demand payment upon service completion, or shorten your terms to Net 7 or Net 15. However, your customers may opt to engage your competition for short-term credit.
A better variation is offering a discount if payment is rendered sooner than Net 30. For example, if customers pay within 10 days instead of 30 days, they receive a 2 percent discount. This provides an incentive, but it doesn’t force shorter payment terms.
Other Payment Variations
Check out less popular payment options such as payment in advance, cash on delivery, letter of credit, and staged payments. Any of these options are possibilities if you have a unique customer situation, or want to negotiate payment options as part of a long-term contract.
Trends for Longer Payment Terms
According to an article in Transport Topics, more and more customers are asking their freight companies to extend even longer credit cycles. In some cases, large corporations are requesting up to 120 days to pay. Freight companies must weigh the costs of extending credit against the need for budgeting for things like fleet maintenance.