Somewhere right now there is a freight forwarding company having its best year ever.
The order book is full. Every job it has quoted this quarter made a margin. The owner has been telling people that business is finally good.
And at the end of the month, it cannot pay salaries.
This is not a rare story. It is one of the most common ways a logistics business dies, and what makes it cruel is that nothing went wrong. No client refused to pay. No shipment was lost. No job was priced badly. The company simply ran out of money while being profitable, which sounds impossible until you understand what a freight forwarder actually is.
It is a bank. A small, unlicensed, unpaid bank that lends large sums of money to its own customers at an interest rate of zero, and calls the result revenue.
This is the first of six essays about that problem: why it happens, why growth makes it worse, what actually works against it, and what to measure so you can see it coming. Every figure I use is invented and rounded, chosen to show the shape of the thing rather than to describe anybody's real shipment.
The two kinds of money that pass through your hands
Open any freight invoice and you will find two completely different things added together, and almost nobody separates them.
The first is your revenue. Your freight margin, your handling fee, your documentation fee, your clearing fee. This is the money you earned. It is yours.
The second is disbursements. This is money you paid out on your client's behalf and are now claiming back: the import duty, the taxes, the terminal charges, the shipping line's local charges, the haulage. You earned nothing on any of it. You are simply a person who paid a bill for somebody else and would like to be reimbursed.
On a typical import, the second kind is somewhere between ninety and ninety seven percent of the invoice.
Read that again, because everything follows from it. Almost all of the money moving through your business is not your money, was never going to be your money, and you paid it out before anybody paid you.
The ratio nobody calculates
Take an ordinary container import. Invented numbers, round ones, but in the proportions you will recognise.
The goods arrive. Duty and taxes are, say, twelve million naira. Terminal and shipping line charges are two and a half million. Your overseas partner invoiced you four and a half million for the origin work and the ocean freight. The haulier wants nine hundred thousand for the delivery.
That is roughly twenty million naira out of your account.
Your fee on the job, the part you actually earned, is six hundred thousand.
So the ratio is about thirty to one. For every one naira of margin this job earns you, you had to find thirty naira and put it out into the world first.
Now look at what that means for the business as a whole. The size of your company is set by your margin. The size of your cash requirement is set by your clients' tax bills. Those two numbers have nothing to do with each other, and the second one is thirty times bigger.
You did not choose to be in the business of financing other people's import duty. But that is the business you are in.
Nobody has a credit account with customs
Here is what makes the shape of it so unforgiving.
Your client gives you thirty days. Your overseas partner gives you thirty days. Your haulier gives you fifteen, on a good day, if he is feeling generous.
Customs gives you nothing. So does the terminal. So does the shipping line.
The single largest number in the whole file, the duty and taxes, is the one item on which credit does not exist anywhere in the world. It must be paid in full, in cash, before the goods are released. And it falls due at the worst possible moment: the container has landed, the free days are burning, and every day you spend finding the money is a day of demurrage and storage on top.
So the biggest payment, the one you earn nothing on, is also the most urgent, and also the least negotiable. That is not bad luck. That is the structure of the industry, and it applies to every forwarder in every country.
Five clocks, none of them agreed with each other
Now add the timing, which is where it goes from expensive to dangerous.
Your overseas partner invoices you at origin, when the goods are loaded. If his terms are thirty days from his invoice, his money is due while your container is still on the water, weeks before your client has received anything at all.
Customs wants paying on arrival. The terminal and the line want paying before release. Both in cash, both within days of each other.
Your haulier wants paying two weeks after delivery, and in a market where diesel is expensive and ports are congested, he may want it sooner.
Your client pays thirty days after delivery. Possibly. If the paperwork was accepted. If the purchase order existed. If nothing was queried.
Five parties, five clocks, and not one of them was set by reference to any of the others. Nobody sat down and designed this. It assembled itself, one negotiation at a time, each one sensible on its own.
That is the funding gap. It is not a mistake anybody made. It is the space between five separate agreements that were each made in isolation.
Why nobody in the company can see it
Here is the part that keeps this problem alive for decades in company after company.
It does not appear on the profit and loss account. Not anywhere. The P&L will tell you that job earned six hundred thousand, and the P&L is correct. It has no column for "we had twenty million of our own money out in the world for seven weeks to earn this".
And it belongs to no department.
Sales agrees the payment terms with the client, and is measured on whether they won the job. Operations spends the money, and is measured on whether the container cleared. Finance chases the invoice, and is measured on whether it was collected eventually.
Every one of them did their job properly. The gap sits between the three of them, which means it is on nobody's report, in nobody's target and in nobody's mind until the morning the account is empty.
I have come to believe this is the single most useful idea in commercial logistics: the money is almost never lost inside a department. It is lost between them. Once you start looking for it in the gaps, you find it everywhere.
Why your best year is the dangerous one
Now the part that turns a squeeze into an ending.
Suppose the business doubles. Twice the containers, twice the clients, twice the margin. Every job still profitable. Congratulations.
You now need twice the cash, and you need it earlier than you earn it. The cash requirement grew with the volume. The profit grew with the margin. Volume is thirty times larger, so volume wins, every time.
This has a name in finance. It is called overtrading, which means growing faster than your working capital can support. Working capital is simply the money a business needs to keep running between paying out and getting paid.
It kills good companies far more often than bad ones, because bad companies never grow fast enough to get into trouble.
And it arrives in a very particular order, which is worth memorising so you recognise it early:
First you start paying your partners a little late. Nothing dramatic. But your rates quietly get worse, because you are no longer the customer people fight for.
Then you begin turning down good work, because you cannot fund it, while still carrying the badly funded work you already accepted.
Then the borrowing starts, usually as an overdraft, which is the most expensive money available and the wrong shape for the need.
Then one client pays very late, or does not pay at all, and takes with it the margin of thirty clean jobs.
None of those four steps looks like a crisis while it is happening. Each one looks like a bad month.
So what do you actually do about it
I am not going to pretend there is a clever trick. There is not. But there is a clear order of attack, and most people work it backwards.
Almost everyone reaches first for borrowing, because needing money feels like a problem that money solves. It is close to the least effective thing on the list, and it is expensive.
The things that actually work, roughly in order of how much they are worth:
Stop funding other people's taxes. The duty was twelve million of the twenty. It is not your liability, you earn nothing on it, and there are three or four legitimate ways to stop carrying it. This one lever is worth more than everything else combined.
Remove the delay between delivering and being able to invoice. Most of it is administrative, most of it is predictable, and a surprising amount of it is self inflicted.
Stop the clocks fighting each other. Your partner's terms and your client's terms can be brought closer together, and almost nobody tries.
Charge for the money you are lending, and then actually put it on the invoice. Many forwarders have this policy already and simply do not enforce it.
Know which jobs are worth winning. This is the one that turns the whole problem into an advantage, and it is where this series is going.
Those get an essay each, including an honest one about what you can do when you have no leverage at all, which is the position most small forwarders are actually in.
The one thing to do this week
Before any of that, do this, because it costs nothing and it changes the conversation permanently.
Take last month's completed files. For each one, write down three things: how much of your own money went out, how many days it was out, and what the job earned.
Multiply the money by the days. Apply whatever your borrowing actually costs you. Subtract it from the margin.
You will find files that lost money. They will not be the files anyone suspected, and several of them will be jobs the company celebrated winning.
That single sheet of paper is the most persuasive document you can put in front of a managing director, because it does not argue about strategy or blame anybody. It just shows, quietly, that the company has been lending money at a negative interest rate and recording it as revenue.
Everything else in this series follows from being able to see that number.