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Payment Guarantees in the Transport Business

Guest post by: Silvan Pillay

Article Overview: Many transporters insist on Payment Guarantees before they start operating. This article explain the concept and highlights the truth about payment guarantees in the South Africa environment.

Payment Guarantees in the Transport Business

The Truth about Payment Guarantees?

The most popular buzzwords for newcomers to the industryare "Payment Guarantees".

So what are payment guarantees?

Definition 1: A payment guarantee is a commitment to make a debt payment in accordance with an agreement.

Definition 2: A Guarantee or Letter of Undertaking is a service whereby theclient guarantees a payment obligation, of a specified amount, to the other party in accordance with the terms and conditions stipulated in a contract.

Practical Definition: Transport Contracts Related - On a practical level and the way most people understand it is that an Attorney receives the payment from the Contracting Client (E.g A Mining Company) and then pays the other party after taking his (attorneys) fees.

Pros and Cons of Payment Guarantees in The Transport Industry

1. Any guarantee or letter of undertaking provides peace of mind - It is better than no undertaking at all. It still however does not imply that you will get paid on time or get paid at all.

2. It could cost you are to 10% of the money due to you.

3. Payment is based on performance - the more tonnage you move, the more you get paid. The Mine, or Contract Holder cannot guarantee any amount since you have to perform first before they can calculate what is due to you. Unless of-course the deal is that you get paid a flat rate whether daily, weekly or monthly irrespective of your performace (I have not seen this though in my lifetime).

4. The guarantee you get though is that you will receive payment on a certain date or after a certain period, but no one can guarantee an amount. This is great for "peace of mind".

5. You ned to ensure that the Attorney or Paymaster that issues the Payment Guarantee or letter of undertaking has a valid Fidelity Fund Certificate and is simultaneously registeredwith the likes of The Law Society of South Africa or equivalent authorised body.

6. What if you receive a "Payment Gurantee" or "Letter of Undertaking" and you do not get paid on time or do not get paid at all. Next step cough up about R25 to R45 000 to start leagl action. Wait for a trial date (2 years maybe) and maybe you will get lucky.

7. How many of you have ever seen a legitimate payment guarantee? Be honest - I am talking about a legimate payment guarantee. Yes we have all seen letters issued by attorneys or other paymaster. But is it really a payment guarantee in accordance with the true definition. Think about this!



What is the next best thing to a Payment Guarantee?

Proof of History of Recent Payment! What do I mean by this?

When contracted by any company, request that they provide you with evidence of a history of payment to past and/or existing subcontractors, agents, brokers or whoever it is they pay. This is evidence that the company contracting you has a record and a history of payment to its other contracting parties. If I had only practiced this simple piece of a advice a couple of years ago, I would'nt have burnt my fingers where I lost R1.2 Million.I also lost 2 trucks in the process.

This is what I practice today and this is the sole reason I have never burnt my fingers again. I paid my school fees and I hope that sharing this with you will save you some valuable time, moneyand energy.

At Africatransport, our policy is to make available our Payment History to all Prospective Parties we intend doing business with. This way we provide you with piece of mind and we will provide you with evidence that we have always in the past year paid our subcontractors on time, except for 1 month where there was a bank EFT delay beyond our control.

I will probably wirte another article on this - Do not fall for - "The Trucks should have Started Yesterday". This is the Mission of Illegitimate Transport Industry Players. Whenever someonemakes this Statement, Beware! Somethimes there are genuine reasons, but most of time it is BS. I will explain this in detail in the next article.

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Article Tags: coal transport contracts, payment guarantees, south africa, transport, Transport contracts



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