Freight Payment Service - Financial Risks and Freight Payment

Financial Risks and Freight Payment

The selection of a freight payment company involves more than just hiring a service provider. It means selecting a custodian for millions of dollars of a company’s assets. The freight payment company is being called upon to be a “good steward” of assets to which it has no claim. This paper focuses upon the clarification of what a customer should and should not consider when evaluating a freight payment company’s role as a fiduciary, and potential financial risks.

The unfortunate reality is that the freight payment industry has seen a few noteworthy incidents of fraud in its past. The most remarkable of these was the cash of Strategic Technologies Inc. (STI). In the case of STI, an elaborate process of check kiting allowed them to survive for ten years even though they were insolvent. The company's owner had used the funds of customers for things such as buying a share in a hockey team and other indulgences.

Shippers should focus on a few key elements of a potential provider to mitigate these financial risks. They include:

1. A review of the provider's audited financial statements
2. A review of the provider's SOC 1 report prepared pursuant to SSAE 16 {formerly SAS 70)
3. An investigation of the provider's process for handling refunds
4. A bankruptcy remote structure for holding clients' freight funds