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Paying Freight Forwarders: Understanding & Sidestepping the Credit Problem

 

Whether you’re engaging domestic or international shipping, a freight forwarder alleviates the burden of good transportation across several carriers. That said, freight forwarders carry high liability risks—and they may not be covered by your business’s supporting credit provider.

Often, freight forwarders and shippers find themselves stepping through a multitude of payment processes, only finalizing and moving a shipment after a credit application, credit check and wire transfer. Typically, traditional payment processes are tremendously time consuming, due to credit company responsibilities, complicated shipping requirements and liability.

Fortunately, small and medium-sized businesses can now utilize modern booking and payment options, sidestepping the sometimes-lengthy international shipping payment process. Shippers, freight forwarders and surrounding logistics service providers are supported, making the process incredibly straightforward.

To pay your freight forwarder quickly and effectively, you’ll need to understand why credit difficulties, liability and payment difficulties exist in the shipping world. Then, you can learn to alleviate these stresses and take advantage of modern payment options.

Understanding the Liability Problem

In the past, transportation liability was easier to understand. Beneath traditional United States federal transportation laws, carriers were responsible for transported freight until delivery occurred. Today, however, individual contracts created between carrier and shipper may offset injuries and damages.

As a result, freight forwarding plaintiff attorneys have focused on high command chain areas—looking to shippers, carriers and brokers for compensation. Freight shipping liability is dangerous for modern credit providers. The Federal Motor Carrier Safety Administration’s evolved Compliance, Safety, Accountability establishment—alongside the Safety Measurement System—have continued to guard shippers against damage claims. These programs do impact a shipper’s liability, making them capable of withstanding losses and damages.

The Lengthy Payment Process

The payment process, too, is typically lengthy and complicated. International shipping requires mutual agreement—agreement which can become “lost in translation” or become burdened as payment is dealt with.

In most cases, both parties must conduct credit checks to ensure one another’s financial viability. Then, credit applications must be filled out to obtain financial support. A wire transfer process must then be completed.

Step One: Create a Communication Process

For any exports, utilize a Shipper’s Letter of Instruction to ensure all details are covered. In doing so, you can greatly reduce liability and increase your chances of credit support. Also, secure logistic information about export-related documents, dimensions, weighs and other details. Make sure to include information such as License Authorization, Classification and AES Internal Transaction Number. Any imports should require your forwarder to notify you.

Step Two: Apply for a Payment Account

Next, you’ll need to apply for a payment account. While this account won’t extend to your credit, it’ll fortify your business’s identity when conducting services. The above-mentioned liability and payment issues have made it necessary, now, to establish a buyer’s portfolio and proof of identity. A payment account isn’t only a general risk prevention practice, it’s an all-in-one payment utility.

Step Three: Apply for Credit

If you’re running a small or medium-sized business, forwarders may not supply credit support. Forwarders expense large working capital amounts, spending great amounts on company payments. Airlines, trucking companies, warehouse providers and even ocean carriers are supported by forwarders, making forwarders less likely to extend credit to freight forwarding projects.

In all likelihood, you’ll need to apply for credit authorization. Credit authorization lets your business pay a forwarder after service completion. Up to 30 days will be granted for repayment, based upon your business’s credit history.

What if Authorization Isn’t an Option?

If, however, you cannot secure credit authorization, your forwarder may provide the option to “pay against documents.” In this case, a freight forwarder can provide in-depth authorization to a credit provider, ensuring all documents and transported goods are secured. Often, original documents will be required to complete this process before a forwarder is paid.

A forwarder can then check, via courier, or complete a wire transfer through ACH to verify the deposit’s clearance. Documents are released, and credit can be obtained. While obtaining credit from the get-go is preferable, the pay-against-documents route is quite effective. Paying back credited amounts, however, will result in revoked credit.

Step Four: Consider INCO Terms Options

Free On Board, for example, extends to goods transported via inland waterway or sea. FOB requires your business to pay documents after a shipment is complete. As your shipment arrives in a port, you pay the required amounts. By doing this, you can gain credit. An ocean carrier, however, will effectively “own” your shipment and will not release it until payment confirmation is received.

Step Five: Purchase Insurance

It’s a good idea to purchase full risk insurance – especially for first time shippers, as it can protect your business from carrier issues. Whether a container is damaged, degraded or exposed to harsh conditions, full risk insurance will ensure your product’s overall health. Or, if a carrier goes bankrupt, full risk insurance will defend your business while ensuring the shipping company relinquishes your goods.

Step Six: Pay Additional Fees

In many cases, you—as the shipper—will be responsible for any charges spanning across the Bill of Landing Fee, Service Fee and Pre-Carriage Fee. If you need to take over a shipper’s premises, you’ll need to assume liability for all pick-up cargo charges, too. In this case, your extended liability may translate into a payment problem. To secure the best-possible credit options, know your business’s limitations.

Also of note: Shipping lines don’t often concern themselves with any Incoterms used between buyer and seller. They do, however, expect all Ocean and Landside charges to be paid to them via the party entering the contract. Often, it’s in the carrier’s interest to examine Prepaid and Collect charges before shipments occur. In some cases, options like Freight Collect may not be accepted at a given destination due to foreign exchange regulations.

Is there an alternative?

The lengthy and complicated credit processes have been a painful issue for many businesses. Since the freight forwarding industry has been so complex, highly regulated, and often associated with high risks, it has been almost impossible to have any alternative.

A one stop shop for shippers to take care of all international shipping related works would be tremendously helpful. Fleet – the international marketplace for logistics, was born for that one reason: to make international shipping easy for small & medium businesses.

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From looking for a freight forwarder, get quotes, to book & pay them for shipments – shippers now can do all of these online via Fleet platform. The community of freight forwarders on Fleet are also ready to accept payment via Fleet, because they want to provide faster service and better customer experience. Fleet helps businesses to manage and run their international logistics more efficiently, so that both shippers and logistics service providers can focus more time and effort on growing their businesses.

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