On Wednesday May 28, the U.S. Attorney for New Jersey unsealed a criminal complaint against the former owner of now defunct freight payment firm, Trans Vantage.
The complaint alleges actions by the owner of Trans Vantage which, if true, represent the highest betrayal of trust by a provider to its customers.
This case is unfortunate, yet a strong example to shippers of the importance in performing both initial and ongoing due diligence upon their providers. The
objective of such due diligence should be to not only avoid financial damage but also the more serious issue of long term operational damage.
Financial loss is just the second worst thing that happens to shippers
Naturally, the financial damage caused to shippers, who must now pay carrier invoices a second time, is significant and “headline grabbing”. One cannot help but be angered as one reads allegations of freight funds being used for exotic cars, boats, and homes. However, the far greater damage is done in the form of long-term operational damage at the shipper.
The shippers victimized by these failures must contend with immediate and ongoing operational challenges even if they didn’t use the provider to make payments. These include:
• An unplanned, hasty, and disruptive transition to a new freight payment provider
• Bad or inconsistent transportation data
• Degraded carrier relationships from slow or no payments
• Lost executive support for future initiatives due to this failure
An unplanned, hasty, and disruptive transition to a new freight payment provider
Shippers in these situations are forced to drop their most important priorities and execute a rapid and unplanned transition to a new provider. Given the rushed nature of this project, there is no opportunity for them to do a thorough search or take advantage of the implementation of a new provider to re-engineer their existing troublesome processes. They must pick up their existing process with all of its warts and drop it on a new and untested provider. The fallout from rushed implementations will impede their work for quarters and maybe even years to come as they must focus upon “cleanup” with the new provider.
Bad or inconsistent transportation data
Shippers cannot rely upon the data from the failed legacy provider. As the provider “circles the drain,” the processing of the shippers’ transactions will be inconsistent, untimely (poor accruals), and full of data errors. Without strong baseline data, the shipper will struggle for years as critical data for bids is compromised, and year-over-year comparisons are rendered virtually impossible with this corrupt data. Worst of all, the shipper will continue to be exposed to financial loss as any reliable checking for duplicate invoicing and payment would not be possible.
Degraded carrier relationships from slow or no payments
As shippers’ struggle to find capacity in an ever-increasing “seller’s market” for freight in all modes, any qualitative advantage or disadvantage can affect their operation. Invariably, in the transition from a defunct provider to a new one, invoice payments will be delayed or not occur at all. Carriers will be forced per their own internal policies to write-off invoices, thus degrading the profitability of the relationship, and directly impacting their perceived value of the shipper. This can be just another way that the shipper gets a reputation of being a “bad” customer and finds their capacity diverted to other “good” customers who pay on-time without interruption.
Lost executive support for future initiatives due to this failure
The most insidious long term damage to a shipper comes from the loss of credibility with executive management. As much as a transportation leader may try to convince her boss of this debacle being unavoidable, she will suffer a loss of credibility in the eyes of executive management. Her future recommendations for any type of service provider will be more highly scrutinized, and her ability to propose riskier projects will be greatly diminished. Unfortunately, someone must always be blamed by an organization when these incidents occur.
This could have been avoided
Shippers can avoid ALL of the financial and operational damage of these incidents with a few simple initial and ongoing due diligence steps:
• Review EXTERNALLY AUDITED financial statements of a provider on an annual schedule
• Use a provider with a bankruptcy-remote structure for holding freight funds
• Use a provider with a high (>80%) use of Electronic Funds Transfers (EFT) to prevent check kiting.
• Audit a provider’s cash flow on your account annually including the flow of refunds back from carriers.
How is A3 Freight Payment different?
A3 Freight Payment has the highest standards of fiduciary control of any independent provider in the industry. Its financial statements are independently audited, it has an industry-leading bankruptcy-remote structure for holding freight funds, and disburses 100% of tis freight funds via EFT.
FOR MORE INFORMATION:
Read the full news release form the U.S. Attorney’s office in New Jersey HERE
Read the full criminal complaint HERE
Read A3 Freight Payment’s financial due diligence checklist HERE
Also, read the complete A3 Freight Payment white on mitigating financial risks HERE