EFT vs Check Payments

According to NACHA (the National Automated Clearing House Association), ACH payments average $0.29 per transaction and manual checks average $1.22 per transaction.  So this begs the question, "Why does my freight payment provider still issue manual check payments to my carriers?".  First, let's address the number of reasons why the shipper/client should be concerned if their freight payment provider is issuing payments via check. 

1.  Paper checks are susceptible to fraud and theft

2.  Paper checks have no definitive settlement timeline

3.  Paper checks are expensive to issue

Your provider is likely not adopting EFT/ACH payments for two reasons.  The most likely reason is they are attempting to maximize earnings on your account by holding on to your funds for as long as possible.  While your transportation funds are on deposit with your provider, they earn interest on your money, so it is in their best interest to hold on to those funds for as long as possible.  Paper checks that mailed take time to travel to the carrier (mail float) and then are subject to the carriers AR process which involves receiving the checks, reconciling payment, and depositing the funds (carrier AR float).  Combined, these time periods can easily add an additional week to the time funds are on deposit and thus earning revenue for your provider.  A secondary reason is that your provider may simply have antiquated payment systems and is not willing to invest in modern technology to facilitate secure and time-definitive payments to your logistics providers. 

Regardless of the rationale, shippers should adopt solutions which not only issue electronic payments but also capture and provide settlement details to properly calculate payment timelines.  Without definitive settlement timelines shippers do not have reliable metrics to track on-time payments to carriers.  This impacts their ability to measure the freight payment company's performance and places them at a significant disadvantage during carrier negotiations.

Posted by Craig Cameron at 10:21