Good morning, and welcome to the latest edition of TEG Transport Insights.
Recently, the UK government unveiled a long-pending strategy designed to speed up payments to small businesses. The somewhat hostile nature of the ‘Time to pay up’ strategy says a lot, painting bigger businesses as bad guys that can pay suppliers sooner but choose not to, for selfish reasons.
The benefits of paying carriers sooner
Setting aside the claim’s validity momentarily, in transport, paying carriers sooner has benefits for 3PLs. Those that pay carriers sooner have an easier time attracting suppliers, and a broader supplier base means greater resilience.
In a related benefit, 3PLs who attract more suppliers can cherry pick the best, improving their service and strengthening customer relationships. Those with a reputation for early settlement might even expect preferential rates: carriers value early payments, and value creation is typically financially rewarded.
Two barriers prevent quicker payments
Why, then, do carrier payments drag? One reason is operational. For 3PLs, reconciling orders, invoices and PODs takes time. Many turn to self-billing as a solution, which works well when working with long-term contractual partners. Self-billing, however, is ill-suited to collaborating on-the-fly.
A second barrier to speedy invoice settlement is cashflow. 3PLs, like their carriers, work on credit, and cannot pass on cash they’re yet to receive. Carriers can of course solve cashflow impediments through invoice factoring, but doing so merely exacerbates operational complexity.
None of the risk, all the reward
The good news is new technologies are beginning to let 3PLs have their cake and eat it. Innovative, fin-tech enabled platforms (yes, like TEG) now allow 3PLs to auto-reconcile invoices, overcoming operational barriers to settlement. At the same time, embedded finance options are settling carriers invoices as quickly as 60 minutes post invoice approval… without 3PLs facing reconciliation issues or having to pay any sooner.
Whether driven by government strategy or otherwise, then, it’s unsurprising that 3PLs are beginning to pay their carriers sooner. In an era of driver shortages and volatility, the benefits of doing so are big. The drawbacks, meanwhile, are increasingly non-existent.
Triptika Chaudhari
