Unclear contractual terms can cause significant damage to business relationships and incur substantial costs. FIDI Business Intelligence Manager Marie-Pascale Frix discusses the importance of putting robust payment conditions in place up front and highlights the guidelines that FIDI’s PCG Committee has put in place for its Affiliates
The current economic climate poses significant challenges for our industry. With the global economy under pressure, maintaining healthy cash flows is a priority, particularly as payment terms have been strained by supply chain demands and corporate/RMC delays. Late payments are now a recurring issue, undermining financial stability and creating a domino effect that threatens the viability of supply chains. Trading partners shouldn’t be used as banks. Everyone in the supply chain needs to uphold financial integrity, because it benefits the entire industry.
FIDI has observed a marked increase in claims between agents that come from a lack of, unclear, non-compliant or ‘hijacked’ financial terms. These disputes can harm both agents and transferees.
Examples of common issues:
Situation A: unclear terms or misperception
● A booker is informed that a shipment is cleared through customs and is asked to pay charges for clearance and delivery up front
● The booker contests the request, citing pre-agreed terms or that the so-called ‘FIDI 30-day credit terms’ automatically apply (which is a misconception, as the fact is that the 30-day ‘rule’ is in no way a rule, only a guideline. Every agent sets the payment term they see best fit).
Situation B: hijacked terms
● A shipment is delivered and a service invoice is issued
● The invoice is withheld because damage is reported, effectively holding the payment hostage until compensation is resolved.
Situation C: shipment withheld
● An agent withholds a shipment to enforce payment of unrelated overdue invoices.
Situation D: delay tactics or late contestation of an invoice
● Service invoices remain unpaid despite follow-ups and payment promises
● In some cases, invoices are disputed well after the due date has passed.
Recommendations
Analysis of cases reported to the FIDI Dispute Resolution Service and FASI highlight the need for better practices. Here are recommendations to help prevent disputes:
1. Tackling misconceptions
There is a widespread, but incorrect, belief within the FIDI community that FIDI imposes a 30-day credit term between Affiliates. However, this is not the case – FIDI states that agents must define and mutually agree financial terms with their trading partners.
“Agents may choose the FIDI Professional Cooperation Guidelines’ (the PCG) default terms or establish their own, provided the terms are documented clearly in writing and agreed in advance,” says Nicki French, PCG Committee Chair.
2. Best practice
FIDI recommends doing the following:
● Go back to basics: define, agree, and document financial terms
● Clearly define and agree upon your financial terms – in writing and before service begins
● Ensure terms cover standard service elements and detail any exclusions (FIDI has developed a generic list to get you started – see the PCG document)
● If upfront payment is required for standard service elements and/or normal exclusions, this should be clearly outlined in the terms of your contractual agreements
● If no terms are set, the default expectation is payment within 30 days of invoice receipt
● A business must adhere to the terms agreed at the start of a job. Depending on your local laws, it may be illegal to change terms unilaterally for ongoing work. Changes should apply only to future agreements.
3. Review your documentation
Look at your policy on credit terms and ensure the move was booked according to this:
● Ensure quotes, contracts and invoices clearly state payment terms
● Report consistent late payments or bad practices to your trade association
● Remind your trading partner regularly of the applicable booking and payment terms
● Apply PCG protocols – on potential or actual port storage/rent and demurrage liability, for example – and train your operations team
● Communication between parties is key!
4. Poor practices to avoid
● Using delay tactics to postpone payments until escalated to a trade association or collection agency
● Holding shipments to ransom for unrelated debts – this is illegal
● Failing to reference financial terms in contracts or quotations
● Using vague or unclear payment terms
● Ignoring payment reminders systematically.
Financial integrity is fundamental to trust and stability in our industry. To strengthen your business:
● Regularly review credit terms for corporate/RMC moves/your business partners
● Only work with firms affiliated with reputable trade associations, eg, FIDI or IAM, or ask for advance payments
● Adjust payment terms to break the late-payment cycle and minimise risks
● Protect your business by using tools such as the FIDI netting system, FASI, the FAIM Financial Assessment, and FIDI Dispute Resolution Service
● Report unethical behaviours to your trade associations to maintain a healthy industry environment.
Make sure you are following this best practice, to protect your business, develop trust with your supply chain partners, and strengthen our industry overall.
Consult the FIDI Professional Cooperation Guidelines on FIDINET for further guidance. If you have any questions, please contact Marie-Pascale Frix at Marie-Pascale.Frix@fidi.org.
Nick Kerr – PCG Review Committee
According to the FIDI PCG, payment terms must be set out (with the quote or contract) by the agent servicing the booker; if the booker disagrees and proposes alternative (slower) payment terms, they must tell the service agent in advance, and it is incumbent on the service agent to confirm their agreement or not.
Either way, the parties must agree on payment terms, and if the service agent intends to impose different payment terms on extraneous services or outlay – such as demurrage or customs duty exclusions – those terms must also be clearly set out prior to the contract.
You can read more on this subject in these recent FIDI Focus articles: