Fleet Management News & Business Info | Commercial Carrier Journal
Issue link: http://read.dmtmag.com/i/442406
BY TODD EHRLICH 1 A payments management system that brings transparency and standardization to the relationship between brokers and carriers. Brokers can use this and other features to coordinate their capital lending needs with incoming payments from shippers and outgoing payments to carriers. e payments system can be combined with features common to transportation management soware (TMS) systems such as load offers or tenders. When a broker offers a load to a carrier electronically, the carrier can see the payment terms and accept the load, which automatically initiates the payment process once the delivery is confirmed. A cash management platform does not have to replace the TMS systems that brokers already use to operate their businesses. Rather, it should be capable of integrating with existing TMS platforms to support and enhance the relationship between brokers and carriers by providing the capital and automating the payment process, among other vital services. If a traditional TMS platform were compared to an iceberg, a cash management platform would be the underwater portion that stabilizes the structure. C ash flow is the lifeblood of every business. An abnormal heartbeat is expected whenever revenues decline and customers delay payments, but even during boom times cash flow has to be carefully managed to survive. In the transportation industry, freight volumes are expected to grow by more than 3 percent for the next few years with rates continuing to rise. Despite what should be a good business environment for brokers, many small and mid- size companies are hanging on for life. Cash flow problems of brokers are rooted in the fact that they operate as virtual banks for shippers and carriers. Shippers are asking brokers to extend credit for to 60 days while carriers have shortened their expectations. To compete in a very tight capacity market, brokers are paying carriers within 28 days and oen 14 days or less out of necessity. Keeping a strong credit rating is critical no matter how market conditions change. A low "average days to pay" gives the broker an instant advantage. Brokers that pay quickly are able to move more loads and get better rates from carriers who are willing to soen their margins to accelerate their own cash flow. Holding onto this competitive advantage is easier said than done. To maintain strong credit scores and keep a healthy cash flow, brokers will oen need an infusion from a bank line of credit or other forms of accounts receivable financing. ese traditional cash management strategies are oen a hassle to obtain and do not offer sustainable, long-term solutions. Another drawback of traditional financing is brokers not being able to access the amount of capital they need to grow their businesses. is should not come as a surprise as brokers do not make good lending clients, at least on paper. On average, 85 percent of their revenues pass straight through to carriers. Another drawback is the high cost of financing that eats away their profits. A new and alternative approach is for brokers to use an accounts receivables-backed cash management platform. A platform approach, described below, makes it possible for a lender to effectively combine technology with capital to offer a specialized payments program to help brokers grow their businesses and operate more efficiently. K E E P I N G A L O W C R E D I T R AT I N G I S C R I T I C A L N O M AT T E R H O W M A R K E T C O N D I T I O N S C H A N G E . " " THE PAYMENTS PLATFORM THAT ACCOMPANIES A SPECIALIZED LENDING PROGRAM OF THIS NATURE SHOULD CONSIST OF FOUR PARTS: G R O W I N G Y O U R B U S I N E S S I N A CAPACITY CRUNCH NEW ALTERNATIVES CREATE A BETTER APPROACH TO CASH FLOW MANAGEMENT THE PLATFORM DEFINED Consider a scenario where a broker offers two loads to the same carrier. e only difference between the loads is that the first pays in 30 days and the other pays two days from delivery. Would it be surprising if the carrier wants $1,550 for the first load and only $1,400 for the second? Not at all. e carrier's margins are much less sensitive when it knows payment will be made in two days versus 30. From a lender's perspective, the investment risk of lending to the broker is minimized by using a platform that ensures that broker is paying its carriers quickly and consistently. e broker benefits from this arrangement by operating more efficiently and being able to grow its business by moving more loads for its customers. continued on page 34 8 IT MAGAZINE Vo l . 9 , N o . 1