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For example, if your paperwork is missing a page, it will lead to non-payment, cash flow shortage, unpaid bills, and drivers leaving. Is it worth it?
For example, if your paperwork is missing a page, it will lead to non-payment, cash flow shortage, unpaid bills, and drivers leaving. Is it worth it?
Content:
Truckers beware: What to do when payments go to the wrong recipientSometimes payments get sent to the wrong people. And you wouldn't know about it until it's too late - before 30 days have passed - unless your accounting uses the aging payment method.
Usually, MC gets hit with a notice from the FC. In the worst case, there's a charge back - but that means it's been 90 days and everything is dark and gloomy.
Yes, 90 days is a long time, but sometimes it happens. How it happens is the question.
The human factor is one of the reasons. I'd even say it's the only reason, but I won't because I don't want to be called evil or toxic. But it doesn't change the big picture - a lot of trouble comes from human error.
So what do we have here? Let's say the broker sends the payment to Factoring Company 1 (FC1) when they should have sent it to Factoring Company 2 (FC2). Why did this happen?
I'll tell you this much - the broker doesn't really care who they send the money to. They have their system and in the system they have your file and on that file they have FC1 marked so they send the money there. When MC moves from FC1 to FC2, they have to get a Notice of Assignment (NOA) from FC2 and a Letter of Release (LOR) from FC1. This is done to establish who is who and who is entitled to receive payments.
In an ideal world - and as I said, it's not the one we live in - the NOA should be sent to the broker as soon as the MC starts working with a factoring company. The same goes for the LOR when the MC stops working with an FC. But very often this part is neglected and the parties involved only remember it when things go wrong, like when a payment is sent to the wrong recipient.
Since the broker is the only paying party in this scenario, there are only two ways it can go wrong - the broker pays to the wrong FC, or the broker pays directly to the MC (instead of paying an FC). Let's see where it goes in both cases.
What happens if the broker sends the payment to the wrong FC?
The broker can ask for a refund from the FC in question and hope for the best. It will definitely take them a while to find out what happened and why, so be patient. When the broker gets the refund, he/she will send it to the right FC this time - hopefully.
What happens if the broker sends the payment directly to the MC instead of paying an FC?
First of all, why would this happen? It's all about the broker and his system - and the information they have on the MC. If the MC is working without an FC and then starts using an FC service, they need to send a NOA to the broker so that they can update the information they have. If they don't get NOA, how would they know that something has changed in the way MC works, right?
So if they haven't received NOA, an update from MC or the Factoring, that's where they send their payments.
If the MC receives a payment like this and they understand it's a mistake, they need to contact the broker and ask them to take action. If the broker sent a check, ask them to void it and send a new check to the FC the carrier is working with.
If the broker sent a wire transfer, ask the FC to reverse it. Or the MC can send the payment they received to the FC.
And one more thing - action is better than inaction. It's often the case that the FC contract has a clause about the MC not acting promptly if they received a payment by mistake. And it stipulates a fee of $100 or 10% of the amount due, whichever is higher.
However, the most important thing you should do is to send the required documents to the broker.
Yes, about that. The broker is not just a person, it's a company - and if you need to send your documents, it's a good idea to send them to the right people. To make sure you do, you can call the broker's main line and ask what would be the best email to send your stuff to update the MC file. What you want to do is get in touch with the Carrier Maintenance Department or Account Receivable. They are the ones that deal with documents and updating MC files.
So, yes, update your file or the problem will repeat itself and you will be stuck in this loop forever. Trust me, you don't need it.
I won't sugarcoat it – you can't really stop these things from happening because we're dealing with humans, and they make mistakes. However, here's a simple solution: consider hiring an accountant who's skilled in using the aging method.
I won't get too deep into all the technicalities, but this method takes some effort, yet it gets the job done. If you want to avoid missed payments or payments going to the wrong place, having good accounting practices is the smart move.
If you're the owner of a small MC, chances are you're also your own safety officer, dispatcher, and whatnot. That's all well and good if you want to save money, but in the long run the $200-$300 you save on accounting may not save you from trouble.
For example, if your paperwork is missing a page, it will lead to non-payment, cash flow shortage, unpaid bills, and drivers leaving. Is it worth it?
Delegate your extra hours! Trucking42 accounting is 7+ years of experience to guarantee the growth of your business.
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