Most transportation companies need bonds to obtain and maintain their licensing. These bonds typically guarantee that the transportation company will follow all laws and make payments according to the license agreement and laws.
Transportation companies are required to pay lots of taxes across many states, municipalities and countries. Tax bonds provide a financial guarantee of the payment of those taxes.
Transportation companies often move goods for themselves or other parties. Surety bonds can allow goods to flow more freely by guaranteeing payment for products throughout the supply chain. Certain surety bonds such as customs bonds are required by governments to ensure compliance with country laws and protect the country’s revenue.
While transportation companies may have alternatives to surety bonds such as posting cash or a letter of credit, surety often has many key solutions.
Liquidity is important to every company. Cash and borrowing can be used for other activities such as company growth or operations. Surety Bonds help preserve a transportation company’s liquidity. In most cases, a UCC or lien filing is only done if a claim occurs. The company can use their assets as they see fit. Alternatively, a letter of credit generally requires a lien filing, and directly reduces the company’s ability to borrow. Meanwhile, the use of cash is an opportunity cost for a company. Many obligations are long term in nature and the company will not be able to use the cash for other purposes each year.
Surety Bonds have a very stable cost that do not easily fluctuate with the overall economic market. Alternatively, both letters of credit and cash fluctuate widely with economic conditions and can be more or less expensive, depending on the economy.
Should a claim occur, surety companies are required to investigate the claim before payments are made. This can give the transportation company time to show a valid defense. Alternatively, cash and letters of credit are generally drawn on demand. The transportation company may need to go through costly and time consuming litigation to get their money back.
For some obligations, a surety bond cannot be used. This is often the case for international obligations. In these cases, other solutions do exist that may be more favorable than a standard letter of credit. Examples included Fronted Surety or Surety Backed Letters of Credit, and On Demand Payment Bonds.
Axcess Surety also specializes in trade credit for transportation companies. Trade credit can allow a company to grow by reducing its accounts receivable risk. Trade credit may also allow the company to receive more favorable terms with their existing lender by having protection against bad receivables.
Many creative solutions are available for the transportation sector. We serve a variety of companies from truckers, railway, airway, ocean vessels, consumer transportation and more. Contact the experts at Axcess Surety today to learn how we can help your transportation business.
Axcess Surety is the premier provider of surety bonds nationally. We work individuals and businesses across the country to provide the best surety bond programs at the best price.
