"Just one of the reasons you need to have a contract" Without a well drafted motor carrier contract in place with the companies used by you, your subsidiaries and affiliates, you are likely not compliant under GAAP (Generally Accepted Accounting Principles) and SOX (Sarbanes-Oxley). Companies are required to reflect contingent liabilities on their balance sheets. However, if your organization uses trucking companies without a contract in place, your company faces substantial contingent liabilities for late payment penalties which most companies are unaware of and thus don't report them.



The late payment trap... and how it can be avoided



Most medium and large size trucking companies quote their rates in terms of a discount off of their standard rates. In today’s market, these discount ranges are typically in the range of 60%, 80%, or even higher.



When there is no individually negotiated contract between the trucking company and its customer, the transactions are governed by the carrier's standard trading conditions and tariffs. These tariffs typically provide that when a payment is “late”, that is, not received by the trucking company within 30 days, there is a late payment penalty imposed of the loss of discount.



For example, if a company had an 80% discount with its carriers, had an annual freight spend of $1,000,000 and paid all of its invoices 31 days or more after receipt, it would have a contingent liability of $4,000,000! This liability can be imposed whenever the carrier chooses to impose it. For instance, if your company were to take its business to another carrier or if the trucking company went into bankruptcy.



With a properly drafted individually negotiated contract in place between your company and the trucking company, such late payment penalties can easily be negotiated away and replaced with commercially reasonable service charges.