Lessons learned from IPS Worldwide’s bankruptcy scandal
If you are like many small and medium-sized enterprises (SMEs), you use a freight payment processor when sending and receiving shipments to and from your customers. But what assurance do you have that these processors will not one day disappear with your money?
Let’s take the latest bankruptcy scandal to affect the freight industry as an example. Deemed “hopelessly insolvent”, IPS Worldwide, LLC (IPS), a freight payment processor based out of Ormond Beach, Florida, filed for Chapter 11 bankruptcy reorganization in late January, seeking to restructure liabilities over $100 million – with assets of only around $50,000 – ostensibly to address “customer frustrations” after failing to disburse mounting freight provider-owed payments. As a pass-through entity, there should have been no reason for IPS to have any payment delays in the first place.
Now, multiple US and international businesses – including Colgate-Palmolive, Stanley Black & Decker, Cía. and a host of SMEs – are locked in a court battle to recover their funds that could last months or even years, with no guarantee of complete recuperation. IPS appears to have “stolen or otherwise misappropriated” the funds earmarked for paying customers. Desafortunadamente, such incidents are not uncommon, given that many businesses do little due diligence on payment providers as they jump at the chance to take advantage of transportation cost savings these companies often offer.
Freight companies have seen this play before
In 2013, three creditors filed an involuntary bankruptcy petition against Trendset, Cía., another freight audit and payment service provider, for failing to remit over $14 million of customer payments, due to an employee’s embezzlement. Less than a month later, yet another similar business, TransVantage Solutions, Cía. encountered an almost identical crisis after its principal allegedly pocketed $40 million of customer funds.
These bankruptcy filings reveal major issues with the way small, opaque payments services companies are entrusted with large volumes of freight transfer payments.
An easy way to prevent such a nightmare scenario is to protect your shipping and freight from the risk of commercial credit loss through Business Factors’ new service: Freight Payment Shield®, featuring Write-off Protection® rates starting at 2.19%. The advantage is clear: Before entering into a transaction, we provide a premier due diligence service on the counterparty to apprise you of their risk profile. Once the account is active, we use our proprietary software to prevent or track billing delinquencies and alert our (and your) account managers of payment anomalies. Business Factors actually purchases (factors) the invoice(s) in question, transferring the commercial credit risk of loss away from our client.
De esta manera, regardless of what happens with your processor, your funds are already disbursed to your shippers and freight providers and you can focus on the dispatch and logistics side of your business worry-free.
The Freight Payment Shield® factoring advantage
Unlike most competitors, Business Factors generally sets no monthly minimums; we typically don’t require a monthly commitment and we work with even the most challenging credits. Most importantly, the Write-off Protection® service we provide is non-recourse, meaning we take care of the credit and collections process, and there is no recourse to our client if we are unable to recover the money for credit reasons.
sin embargo, general commercial liability – i.e., the “generic risk of doing business”, including the clients’ commercial ownership and/or personnel disputes/errors outside our control; force majeure, client contra balances, duplicate, fraudulent and erroneous billing on the part of the client and/or its vendors, etc.. – is not covered in the service.
Business Factors works with businesses with annual revenue between $50,000 and $50 million. The Business Factors family of companies purchases over $1.25 billion in client invoices annually. From a balance sheet perspective, these transactions are treated as an asset sale and our clients generally incur no debt by utilizing the Freight Payment Shield® service.
The Business Factors family of companies has over 30 physical offices throughout the US and Canada. Not including major holidays, our services are available 24/7, 365 days a year and we rarely go offline, fielding inquiries at all hours of the day.