Ask a freight forwarder what his payment terms are and he will tell you one number. Thirty days. Forty five. Whatever is written in the contract.
That number is almost meaningless on its own, and the reason is the subject of this essay.
You do not have one payment term. You have five, they belong to five different people, and only one of them appears anywhere in your paperwork. The other four were each agreed separately, by a different person, in a different conversation, on a different day, and not one of those conversations mentioned any of the others.
This is the second essay in a series about the funding gap in freight forwarding. The first one explained why a forwarder is really an unpaid bank. This one is about the timing, which is where an expensive situation becomes a dangerous one. As before, every figure here is invented and rounded to show the shape of the thing.
The five clocks
Follow one ordinary container import from the day the goods are loaded and watch when each party wants their money.
Clock one: your overseas partner. He does the collection at the factory, the export paperwork and the ocean freight. He invoices you when the goods load, because that is when his work is done and his own costs were incurred. If his terms are thirty days from his invoice, his money is due while your container is still at sea. Your client has not received anything. There is nothing to invoice yet. But the clock has already run out.
Clock two: customs. Duty and taxes, payable in full, in cash, before the goods are released. There are no terms. There is no negotiation. There is no country on earth where a forwarder has a running credit account with the revenue authority. This is usually the largest single number in the whole file.
Clock three: the terminal and the shipping line. Storage, handling, local charges, container deposits. Also cash, also before release, also within days of the duty.
Clock four: your haulier. He wants paying two weeks after delivery. In a market where diesel is expensive and the port queues are long, he may want part of it before he even loads, and if you are slow he will simply take the next job from somebody else.
Clock five: your client. Thirty days after delivery. Which really means thirty days after the invoice is accepted, which means after the purchase order exists, after the supporting documents are complete, and after nobody has queried anything.
Five clocks. Now put them on a line.
Clocks two and three fire almost together, around the time the vessel arrives. Clock one has usually already fired, weeks earlier. Clock four fires shortly after delivery. Clock five fires last, by a distance, and it is the only one that brings money in.
Nobody designed this
Here is the part I find genuinely interesting, and it is why I keep returning to it.
Every one of those five arrangements is sensible on its own.
Your partner wants paying thirty days after he did the work, which is reasonable. Customs will not extend credit to anybody, which is correct public policy. The terminal wants paying before it releases goods it is holding, which is how every warehouse in the world operates. Your haulier has a truck to fuel and a driver to pay, so fifteen days is generous of him. Your client wants thirty days to check the paperwork and run a payment cycle, which is normal commercial practice everywhere.
Not one of those five people did anything wrong. Nobody was greedy. Nobody was trying to squeeze you.
And yet the result is a hole in the middle of your business that you have to fill with your own money for about seven weeks.
That is what I mean when I say the money in this industry is not lost inside anything. It is lost between things. The gap is not in any of the five agreements. It is in the space between them, and that space belongs to nobody, which is precisely why it never gets fixed.
Why the gap is invisible from inside the company
The five clocks are handled by three different departments, and each one is measured on something that has nothing to do with the gap.
Sales agrees clock five. They are measured on whether the job was won. A payment term is not a thing they lose sleep over, because it is not a thing anybody scores them on.
Operations deals with clocks one, two, three and four. They are measured on whether the container cleared and delivered. The money going out is, from their seat, simply what the job requires.
Finance lives with the consequences of all five and controls none of them. They are measured on collection, and they enter the story last, when every decision that created the problem has already been made.
So ask the question directly. Who in your company owns the distance between clock one and clock five?
In most companies the honest answer is nobody, and the second honest answer is that nobody has ever measured it. It does not appear on any report because it is not a cost, not a sale and not an operational event. It is a duration, and businesses are not built to notice durations.
Which clocks you can actually move
Now the useful part. Not all five are equally stuck, and people usually push hardest on the ones that will not move.
Clock five, your client, is the hardest and everyone tries it first. If you are small and they are large, you will not win this. Put it down.
Clock two, customs, cannot move at all. But here is the thing people miss: you do not have to move the clock to stop carrying the money. The duty is not your liability. It is your client's. There are legitimate ways to arrange for their money to pay it rather than yours, and that single change is worth more than every other lever in this series combined, because the duty is usually the biggest number on the page.
Clock three, the terminal and the line, cannot move either. But it shrinks if the container moves faster, which is an operations problem and not a finance one.
Clock one, your partner, is the one nobody tries and the one most likely to give. Ask for thirty days from arrival rather than thirty days from his invoice. It sounds like a small change. It moves his clock four to six weeks closer to yours, and on a relationship where cargo also flows the other way, you can go further and run a running account where only the balance is ever paid. Networks of independent forwarders do this routinely and it costs nothing to set up.
Clock four, the haulier, deserves its own essay and gets one later in this series, because the advice that works in a stable haulage market is actively wrong in a spot market. The short version: do not try to buy time from a haulier. Buy something else from him entirely.
The question worth asking on every job
None of this requires a system or a consultant. It requires one habit.
Before you accept a job, ask: on what day does my money leave, and on what day does it come back, and who is holding it in between?
Most forwarders cannot answer that for a job they are actively quoting. They can tell you the margin to the naira and cannot tell you the duration to the nearest fortnight, even though the duration is what decides whether the margin survives.
Write the five dates down. Just once, for one job. The distance between the first and the last is your funding gap, and it is almost always longer than anybody in the building believes.
The next essay is about what happens to that gap when the business grows, which is the part that turns an annoyance into an ending.