BEST PRACTICES: Don’t Let ONE Customer WRECK Your Business
The Number 1 reason we see healthy freight businesses fail, is they have a “concentration” customer hold up payment (s). “Concentration” or “Customer Concentration” refers to the percentage of total revenue coming from each customer. In other words, how many eggs do you have in that one basket?
According to a recent article in Inc. there are three ways to reduce the risk of being overexposed to ONE client.
1) Never stop developing business.
2) Have a plan for the day you lose the big one.
3) React quickly when you lose the big one.
In the trucking industry, the unfortunate reality is that customers often hold up all payments when there is an issue with just one invoice or load. If more than 20% of your revenue is coming from that one client, you are at risk.
You can calculate your customer concentrations by determining the percentage of your total revenue that is coming from each of your customers. Use your Aging Repot, sorted by customer, to get your total revenue coming from each customer. Once again, the warning sign is a 20% concentration or higher. You may have a short term reason why in a one or two week period, you’ve considered the risk of a concentration and you choose to take it. However, the longer any concentration over 20% persists, the bigger the risk that your company could be hit by a devastating delay in payments, or total loss of that customer.
Many factors work with you to manage your risks from concentrations. Most factors establish guidelines to ensure you’re evaluating concentrations and maintaining an acceptable level of risk for your company as well as theirs. They are working to make sure you stay in business. Your business success is their success.
One of the benefits of working with a great freight factor, is getting tools to help overcome customer concentrations. Freight Factors will be calculating your concentrations for you on a regular basis. Check your Concentrations Report to see what your levels are. Knowing the numbers can help you manage your upcoming workload for one or two projects from other companies to keep things balanced and less risky.
If your factoring company has been in the business for a long time, they will have credit information on many shippers and brokers. You can utilize their services to diversify your customer base. If you are a carrier get signed up with several freight brokers that have great credit history. If you’re already signed up, it’s possible they will directly call you about a load. And you’ll recognize their name on a load board and be able to counteract any concentration you may have by taking some loads from different companies.
Don’t get discouraged by having a concentration if you’re just starting out in business, but do plan to work fast to diversify your customer base. If you have a concentration developing, talk with your Freight Factor about it. An ounce of prevention is worth a pound of cure.
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