Improving cash flow with upfront freight invoicing

In this follow-up to FIDI Focus’s recent article on industry payment terms, James Gooding, COO, MOVE at Santa Fe Relocation, proposes changes to invoicing corporate clients, RMCs and other FIDI Affiliates, for freight services – and suggests practical steps for moving the agenda forward

Following FIDI Focus’s ‘We are not a Bank’ – Getting to Grips with Payment Delays, feature (issue 310), we propose that the moving industry, led by FIDI, launches a discussion on changing how our industry invoices freight to our corporate clients, RMCs and other FIDI Affiliates.

In the article, Thijs Deweerdt, Senior Manager and Internal Auditor at EY, highlights ‘that liquidity risks are getting worse, and that the issue is largely poor cash flow’.

In general, private consumers pay their invoice in full prior to packing, including the prepayment of freight. However, our industry has allowed itself to become a bank for corporate customers, with 30, 45, or 60-day credit terms.

The benefits of implementing change in how our industry invoices freight could, I believe, positively improve cash flow management, reduce company risk, and strengthen the overall sustainability of the industry by fundamentally addressing this liquidity risk. It should empower the moving industry to greatly reduce the working capital tied up in providing services to our clients and help to fund further growth of the industry. At the same time, it should benefit our customers by bettering our ability to deliver high level and uninterrupted services.

The key consideration for the moving industry should be having customers pay for their freight much faster than the rest of their invoice. This is because the real cash challenge for the industry is the cash flow associated with funding the pass-through cost of freight, especially during the build-up to peak season.

COVID and the corresponding impact of increased freight created substantial cash flow challenges for many in the moving industry, which we successfully overcame; however, perhaps now is the time to re-think how we manage and improve this process in the future.

Specific challenges or issues that would need to be addressed include:

  1. Moves that are quoted as a lump sum that include freight. Movers that want their freight paid earlier would need to list freight separately in the lump sum quote, whereas movers that are not concerned could continue to quote lump sum and extend additional credit terms on the freight as they see fit.
  2. Applying margin to freight. This is a reasonably common practice in our industry and, if freight was invoiced earlier, it could still be marked up for the quote as the industry currently does (if backups are not required). If freight needs to be invoiced at cost, the ‘margin’ lost could simply be added to other elements in the quote to maintain the overall margin of the move. However, there are already clients that require backups and that treat freight as a pure pass-through cost with no margin. Adopting an innovative approach to invoicing should contribute to the overall resilience and sustainability of the moving industry and help companies to be more financially stable. Should we see dramatic increases in freight again in the future, the industry would be better placed to weather economic uncertainties and market fluctuations more effectively. This resilience would benefit all stakeholders, including corporate clients, FIDI’s FASI programme and Affiliates.

Changing how our industry invoices freight is a progressive financial practice that could offer significant benefits to the moving industry. By reducing the impact of cash outlays on freight, it should benefit the industry by improving financial stability, and mitigating credit risk, empowering the moving industry to have less working capital tied up in providing services to our clients.

By invoicing freight and requesting upfront payment from corporate customers, moving companies can significantly alleviate these challenges. Receiving payment for freight costs before the service is provided would provide immediate access to fund the transportation process, minimising working capital tied up in expenses, and ensuring smoother operations.

How can we as an industry move this forward? Here are some thoughts:

1. Engage stakeholders: Start by engaging key stakeholders within the moving industry, including moving companies, corporate clients, and RMCs, to understand their perspectives and concerns regarding upfront invoicing of freight. Conduct surveys, webinars, or industry conferences to gather feedback and build consensus.

2. Educate and communicate: Implement a communication strategy to educate industry participants about the benefits of upfront invoicing for freight. Address potential concerns, provide success stories from other industries that have adopted similar practices, and emphasise how this change can lead to improvements.

3. Pilot programmes: Consider implementing pilot programmes with a select group of Affiliates and willing corporate clients to test the feasibility and effectiveness of upfront invoicing for freight. Use the data and feedback to fine tune the approach before rolling it out on a broader scale.

4. Collaborate with financial institutions: Work with financial institutions to explore potential financing options for corporate clients that may find it challenging to make upfront payments for freight. This collaboration could involve offering lines of credit or other financial solutions that mitigate the impact on corporate customers.

5. Standardisation and best practices: Develop standardised guidelines and best practices for implementing upfront invoicing of freight across the industry. This will help ensure consistency and facilitate the adoption of the new approach.

6. Advocacy and lobbying: Collaborate with industry associations and lobby for any necessary regulatory changes or support that may be required to facilitate the transition to upfront invoicing of freight. Highlight the potential benefits to the industry and the broader economy.

7. Continuous improvement and adaptation: Be open to feedback and monitor the effects of the new invoicing approach. Adjust as necessary based on industry feedback and changing market conditions to optimise the benefits.

8. Showcase success stories: Highlight success stories of moving companies that have already adopted upfront invoicing of freight with positive outcomes, as examples to encourage others.

9. Industry collaboration: Foster collaboration within the moving industry, promoting the benefits of this approach as a collective effort to improve cash flow management and financial stability. Encourage open dialogue and the sharing of experiences among companies and Affiliates.

By taking these steps, the moving industry, led by FIDI, can pave the way for a more sustainable and financially robust future. The adoption of upfront invoicing for freight can significantly

improve cash flow management, reduce credit risks, and strengthen relationships across the industry while ensuring smoother operations for all stakeholders involved.

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