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Past-due Accounts… the true cost

In the trucking industry, past due accounts are considerably expensive. We must be aware that from the moment the customer does not pay within the agreed credit terms this account becomes an overdue account. Therefore, action should be taken accordingly. 

In addition to the amount owed, your Company also has to cover the costs of operation in the recovery process, such as: legal costs, payroll, and the amounts related to any idle capital.

As you can see in the chart, the true cost of serious overdue accounts can range anywhere from 31 to 35%.

Continuing to provide service to a customer who normally pays 30, 45 or 60 days after the agreed credit terms only creates capital loss for your Company. The cost of any overdue account is extremely high, often increasing 6 to 10% after all the costs involved are calculated when recovering overdue accounts.

In order to recover some of these expenses, it is necessary to make your clients aware of their financial responsibility when they do not honor their credit terms. To do this, some companies include the following statement in their credit application:

“Credit terms are 30 days from date of invoice. Outstanding balances are subject to 1.5% interest per month. The undersigned authorizes and releases all banks, persons and companies listed on this application to furnish information and authorizes the checking of credit. The undersigned agrees to pay all collection costs, and legal fees incurred to collect delinquent balances.”

If your customer signs the credit application, your Company will have the right to include any interest and late payment fees that a collection agency or attorney may have charged for the recovery of any past due balances.

After ten years of working with Mexican trucking companies, I can tell you that the average trucking company in Mexico carries at least a 25% of their receivables as past due. Apparently, many executives and trucking company owners are not aware of this fact. When asked what percentage of their receivables is overdue, it is common for them to answer in general terms that their receivables are healthy, often estimating that only 5% of those are past due.

In reality, after reviewing their aging receivables report, usually, you can see that more than 25% are overdue. In Mexico, many executives classify a past due account only when the client is no longer making payments and their aging is considerably overdue (3 to 6 months). If the client is 5 months past due, but still making partial payments; basically it is treated as current.

In the United States that percentage is quite different. The rate varies greatly within the industry.  Trucking companies are used to placing their receivables with a third-party collection agency as soon as they see a red flag or the account has past its agreed terms. Here the companies do not let destiny handle their affairs. They make it happen. We are proud to be part of this synergy that keeps America moving. 

Don’t forget! Keep an eye on the true costs of your past due receivables.

Salvador Bañuelos

Sal is known internationally for the debt collection results he has provided to the freight transportation and import/export industries worldwide for the last 15 years. Author of "Credit and Collections in the Freight Industry Handbook" & "Credit & Collections Policy – Practical Guide”. He contributes to the industry with articles in the following leading magazines: T21 and Enfasis Logistica Contact him:  E-mail ,  Twitter ,  facebook,

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Copyright © 2020 AFS International, LLC. All rights reserved.