The Hidden Costs of Delayed Payments in Shipping and Freight

The business of global trade is highly dependent on close and intricate coordination between multiple stakeholders including shippers, carriers, customs brokers, and freight forwarders. 

There are several payment transactions between these stakeholders and timely payments is of the essence in ensuring that the movement of goods is seamless. 

Delayed payments can give rise to several disruptions which impacts not only individual businesses but also the broader supply chain.

In this article, we’ll explore the direct and indirect consequences of delayed payments in shipping and freight and why timely financial transactions are critical and crucial to operational efficiency and building of trust in the industry.

 

Operational Disruptions

Different types of payments happen at different times in the process of shipping. Delayed payments have the potential to bring day-to-day operations to a grinding halt as ocean carriers, ports, customs and inspection operate on a tight schedule and timely actions are key.

Payment delays may result in services being withheld, leaving shipments stranded at ports or warehouses. This disrupts the supply chain, causing delays in delivery timelines and affecting end consumers.

As an example, a delayed payment could prevent a carrier from releasing goods in time which may be required for the assembly line of an automotive plant or other manufacturing plants which could result in missed deadlines or missed opportunities for holiday shopping rush.

 

Strained relationships

Partnerships are key in ensuring the seamless movement of goods and in most cases these partnerships are long-term. Consistent delay in payments could put a strain on these key relationships leading to strained relations which could result in loss of goodwill, increased scrutiny, doubt and in extreme cases, termination of contracts. 

Service providers prioritise clients with better payment track records and this often leaves delinquent payers at a disadvantage during high demand periods.. 

 

Penalties and Increased costs

Delayed payments often could result in penalties such as late payments, additional interest payments etc all of which could quickly add up to the total cost of the shipment. 

These costs include penalties such as demurrage and/or detention because the cargoes could be in storage longer than expected due to the delay in clearing of the goods due to late payment. 

As per the FMC, “over a two-year period between 2020 and 2022, nine of the largest carriers serving the U.S. liner trades individually charged a total of approximately $8.9 billion in demurrage and detention charges and collected roughly $6.9 billion”. Delayed payments to carriers also forms a part of these avoidable costs. 

 

Cash flow challenges

Shipping and freight involves several small-medium sized businesses who are dependent on their cash flow to run their businesses. When there are delayed payments against their invoices, it results in severe cash flow challenges which hinders their ability to pay employees, invest in growth opportunities, or procure new shipments. 

Such liquidity constraints in this industry where timing is critical, can be detrimental to its growth.

 

Reputational damage

While one delayed payment may not affect the immediate transaction, it can have cascading effects throughout the supply chain whereby carriers may refuse to release goods, customs clearance may be affected due to non-payment of duties, ships could be waiting due to non-payment of port dues and several other factors.

These operational issues aside due to delayed payments, a businesses reputation could also be tarnished due to this, leading to negative reviews and reluctance of partners and customers to engage in future transactions. 

Delayed payment often leads to contract breach and non-compliance of payment terms resulting in lawsuits. 

 

Conclusion

If you are facing any of the above situations or to avoid any of these situations, ODeX Digital payment solutions offer an automated and streamlined payment process for businesses.

This digital option ensures that funds are transferred promptly, securely, providing transparency, minimising manual errors with real-time updates on payment statuses.

 

 

Contact our team today to learn more about how our solutions can assist customers in prioritising timely payment and avoiding all unnecessary disruptions, penalties and more importantly ensuring business continuity.