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Alix McCabe: Trust. It's the key to any successful business relationship. So what happens when a customer, one that owes you more than a million dollars, starts testing that trust with some odd behaviour?


Aaron Sanders: Each week, they would pay us 250,000 a week or so, and the controller would send me a text with a picture of the check and say, " Hey, just FYI, this is going out," but you don't think much about it. You're just like, " Okay, they're excited to pay us. And that's great, we're excited to get paid."


Alix McCabe: Let's dive into the story of Red River Logistics and when the going gets tough.

 Welcome to Wheel of Risk, a new podcast series proudly presented by Allianz Trade. I'm your host, Alix McCabe. On every episode, we spin the wheel, land on a new worry, and then tackle it head on by hearing from business leaders who've been through it all before. Plus, we bring you expert advice to help you keep your business safe, secure, and well ahead of the competition. Go ahead, spin the wheel. We've got you covered.

 After years of working for other transportation logistics companies, Aaron Sanders decided it was time to go it alone. But in an industry where interactions are typically transactional, he wanted to make the experience more personal by nurturing client relationships based on trust. And with that, Red River Logistics was born. Working out of his living room in Texas, Aaron started humbly using his expertise to grow a client list alongside his wife, Nicki. Over the next decade, the family business would grow into a company that's now trusted with the transportation needs of hundreds of companies across the US and around the world, but it turns out the trust, on which Aaron built his business, isn't always a two- way street, as he learned when one of his biggest clients unexpectedly filed for bankruptcy. Not ideal, but there is a happy ending to this story. And to share it with us, I'm pleased to introduce the man himself, the founder of Red River Logistics, Aaron Sanders. Aaron, welcome to Wheel of Risk.


Aaron Sanders: Thank you. Happy to be here.


Alix McCabe: Thanks so much for being part of the podcast. I'd also like to introduce my colleague who's here to provide his own expertise. Justin Seedorf is a regional vice president at Allianz Trade Americas. Justin, thank you so much for joining us today.


Justin Seedorf: Yeah, absolutely. Thanks, Alix, for having me.


Alix McCabe: First I'd like to speak with Aaron and learn a little bit more about your company. So can you give us a quick primer on what Red River Logistics is all about?


Aaron Sanders: Well, in a nutshell, third- party logistics with a core focus on chemical logistics. We move just about anything you can think of from a chemical standpoint, from raw materials, to paints, to liquid insulation. If it's hazardous or you don't want to touch it or drink it, we typically move it across the US and then a few times worldwide.


Alix McCabe: And you're based where?


Aaron Sanders: Based in Dallas and have offices in Kansas City, green Bay, Houston. We've got a new one in Philly, one on the West coast, and we just keep expanding.


Alix McCabe: Yeah, sounds like there's a lot of growth.


Aaron Sanders: There is. Yeah.


Alix McCabe: Now, correct me if I'm wrong, I've read that you've been recognized in the Inc. 5000 list of fast growing companies. Is that correct?


Aaron Sanders: Yeah, a couple of years back to back for Inc. 5000, and then most recently, actually this week, SMU, their Cox School of Business voted us into their top 100 fastest growing companies in Dallas, Fort Worth.


Alix McCabe: That's excellent. Congrats on that.


Aaron Sanders: We're moving right along. Pulling our hair out some, but it's good stuff.


Alix McCabe: So you're certainly growing, but is it fair to say that it hasn't always been smooth sailing?


Aaron Sanders: Sure.


Alix McCabe: So without naming names, tell us what you can about this client who started raising some red flags for you a few years back.


Aaron Sanders: So this predates our interaction engagement, if you will, with at the time Euler, now Allianz. So Red River was growing fast as we are now. We had a client come up. We were very excited. The opportunity represented about 25% of our current revenue.


Alix McCabe: Significant, yeah.


Aaron Sanders: Yeah, significant. We engaged this client through our normal process. We looked at credit through the third- party credit bureaus, Cortera, which is now Moody's and Sonia, D& B, things like that. The customer looked good. Wasn't really a lot more homework or due diligence we could do behind the scenes to vet this client, but so far so good. And those avenues and our process had served us well, and things were great in the beginning. Client paying on time. We're growing. We're excited. We're flying to see them multiple times a month actually. And then a couple of red flags popped up. Each week, they would pay us 250,000 a week or so, and the controller would send me a text with a picture of the check and say, " Hey, what, just FYI, this is going out."


Alix McCabe: What? Is that normal?


Aaron Sanders: No, absolutely not.


Alix McCabe: Okay.


Aaron Sanders: But you don't think much about it. You're just like, " Okay."


Alix McCabe: Sure. All right, payments on the way.


Aaron Sanders: Yeah, they're excited to pay us, and that's great. We're excited to get paid. And we typically extend our customer's credit. And this particular client, we were letting them operate around that 45 day mark. So all vendors, all services, Red River pays somewhere around 20 days or so. So the outlay for this client, or let's say the carry for this client, was pretty significant. I mean seven figures.


Alix McCabe: Wow.


Aaron Sanders: But hey, they're sending us pictures even of the checks, and their checks are coming when they say they're coming. But slowly but surely, the pictures and the checks started to be a few day gap and then a week gap. And then you think, " Oh, somebody's on vacation. It happens."


Alix McCabe: Sure.


Aaron Sanders: Or maybe they're doing an inventory or an audit, or who knows? There's multitude of reasons. And you go, " Okay, check A that was supposed to be here on the first, ended up coming on the seventh. Great. That happens." Well, check A on the first ends up being the 14th, and then that next cycle turns into 17 days. And what should be at least, at the very least, a weekly, weekly or biweekly cycle took a pretty hard nose dive. And we went as far as to pause services. Then they would send us a little bit of money. We'd do a little bit of work because you can't shut the door, especially prior to a bankruptcy filing or something like that. So basically, they had us on the hook to do a little bit of work on stuff that was maybe 90 days to 120 days old. So in a trap, if you will, an absolute trap.


Alix McCabe: And over time, did that get worse?


Aaron Sanders: It did. It continued to get worse. Honestly, no end in sight to the point where they stopped paying us.


Alix McCabe: At that point, did they owe you a lot of money?


Aaron Sanders: About 1.1, 1. 2 million.


Alix McCabe: Whoa.


Aaron Sanders: And that number was drilled down to what we had spent on vendors. We removed any idea of profit from that number just to what we would already outlaid on their behalf. Because at that point, we just needed to be reimbursed. We didn't care if we made any money, just reimburse us for the work that we've done or paid people to do that


Alix McCabe: That 1.1 or 1.2 million, for perspective, how did that compare to your overall company revenue at the time? Was it a big portion?


Aaron Sanders: I mean, at the time, I would say it represented 20%.


Alix McCabe: Yeah. Okay.


Aaron Sanders: So a significantly large number, and even more so, more dangerous to us. We're self- funded. I mean, we don't use outside financing where we can help it.


Alix McCabe: So there was a lot on the line.


Aaron Sanders: Mine and my wife's money essentially, if you will. Yeah.


Alix McCabe: So talk to me a little bit about the reaction internally when you realized that things were really going downhill with this customer. I mean, you just said you, your wife, it's a family business. Were you freaking out? What was going on in your head?


Aaron Sanders: Tears. Tears to be quite frank. Decisions like, should we sell our home? Should we liquidate some of the real estate that Red River holds, some of the offices?


Alix McCabe: I just got goosebumps when you said that.


Aaron Sanders: Yeah, I mean, it's funny because we really knew that there was no recourse. We might be named in a bankruptcy as a debtor, but there were many. I mean, Red River is essentially... I mean, it's our business of course, but it is everything. The retirement fund, our exit strategy later if we decided to do that. It's everything to us. And even more so, more dangerous is we've got my daughter, my oldest child, works in our accounting department. My wife's sister works in our managed logistics department. We've actually got three employees and their children that work for us. And we were thinking, " Okay, how many of those jobs are we going to eliminate while we rebuild the business from this loss?"


Alix McCabe: Can we even continue on?


Aaron Sanders: Yeah. We whiteboarded who we may have to let go and if we can keep it moving.


Alix McCabe: Oh, my gosh.


Aaron Sanders: And if you have a job at Red River and you're successful, you're family. I mean, we take extremely good care of our employees. We own our own building. We've built a company gym. There's foods and snacks and everything else. I mean, it's really designed about that whole lifestyle of family and culture and be happy where you work. And we're sitting in here deciding, " Okay, we love Jane Doe or whoever, and we know her personally, that her kids about to start school or her husband just got laid off. And yeah, we're going to have to walk her into a room and not only let her go, but say we don't even really have any money to help you on your next path." So pretty tough. A pretty tough situation.


Alix McCabe: So I mean, it's safe to say this wasn't just business.


Aaron Sanders: No.


Alix McCabe: So in the end, did the client turn things around? Was it a bankruptcy situation? What happened there?


Aaron Sanders: Well, once we started peeling the onion and got representation, we discovered that all of their locations and assets were leased and that private equity had bought and sold them several times over, and they'd been kind of handed around as this business that could almost just make it. And really what we gathered from the relationships we had built with the employees there was that there was a general knowledge that a company like Red River was being brought in to provide some room for them to try and right the ship with the knowledge that, " Well, if things go south, we'll just stick it on them."


Alix McCabe: Wow.


Aaron Sanders: Yeah. Pretty crazy.


Alix McCabe: Justin, I imagine it's frustrating for you to hear about this kind of situation.


Justin Seedorf: Yeah. Yeah, it is.


Alix McCabe: Okay, so we're going to get your thoughts, but sit tight for just a bit longer. We're going to take a very quick break.

 I'm Alix McCabe and you're listening to Wheel of Risk, a new podcast series brought to you by Allianz Trade. In the fast- paced world of business, there's no shortage of things to keep you up at night, but all business is about risk, trust, and reward. And we are here to help you minimize the former and maximize the latter. To learn more about how a partnership with Allianz Trade can benefit your organization, please visit Allianz- trade. us/ podcast. That's A- L- L- I- A- N- Z- trade. us/ podcast.

 Welcome back. Today, we've been speaking with Aaron Sanders, the founder of Red River Logistics, about the challenges of growing a business while dealing with factors beyond your control, like clients going bankrupt. Now that we have all the details, I'd like to bring in my colleague Justin Seedorf for some of his insight. Justin, are you there?


Justin Seedorf: I'm here.


Alix McCabe: So tell me, in your experience, how common is it for companies to run into issues like the ones Aaron described, and maybe what kind of impact can it have on them when their clients can't pay?


Justin Seedorf: Oh, Alix, I wish I could say that this was an isolated incident, but, unfortunately, I know firsthand that this happens all too often. We see it a lot across not just companies like Aaron's, but all types of companies, especially when they're selling to other commercial accounts, what we call B2B sales. They really do try most of the time to do their due diligence, to do the best they can with the tools they have to assess the financial health of their customers to make sure they're not getting in over their heads or offering credit limits that are not going to be able to be paid back. But ultimately, at the end of the day, the tools that historically companies have had to use just don't provide them the type of transparency they need to adequately make those decisions.

 And what happens is they get into relationships with companies that seem like huge opportunities, and they kind of get blinded by the potential profit and don't see that there's some red flags with that company's ability to actually repay what they're committing to pay the supplier. So we see it a lot. And unfortunately for Aaron, this happened to him pre his relationship with us, but there's good news about what can be done for these types of situations.


Alix McCabe: You mentioned something I want to pick up on, which is red flags. And Aaron was just describing for us some of those red flags that popped up in his relationship, in their relationship with this particular client. What advice would you offer to other companies that may have concerns about an existing customer? How can they do their homework, so to speak?


Justin Seedorf: Yeah. Well, I mean, we see that most companies, they understand the importance of trying to uncover information, right?


Alix McCabe: Right.


Justin Seedorf: They're going to have some sort of credit application. They might ask for some trade references or bank references. They might even use some other tools like Dun and Bradstreet or Experian. There's a whole lot of different options out there that allow you to take a snapshot, and you try to judge what this potential customer is going to do in the future based off of what they've done in the past.


Alix McCabe: Based on looking back. Yeah.


Justin Seedorf: Yeah. And so obviously, if you look at some of that info that you can access, and if there's a lot of payment issues where they're just consistently over a large number of transactions, slow to pay, that usually is a red flag. It's an indication of maybe some inability to adequately cover their costs with the cash flow that they have. Now, the problem with some of those tools are they're not really holistic. They're, like I said, a snapshot at a point in history. And so while those tools can be a good indicator of a potential issue, the best course of action for a company in looking to really make sure they keep their finger on the pulse of their customers, it's twofold. Obviously, it's good customer relationships. Staying in communication with your customer, understanding the scope of work that they're providing, but on top of that, employing some sort of system that allows you to passively monitor what they are doing from their own financial obligations. And that can be a little bit trickier to implement, but we have a lot of solutions for that, but most companies aren't even aware of them.


Alix McCabe: What do you mean by passively monitor, Justin?


Justin Seedorf: Well, when I say passively monitor, what I'm saying is it's probably outside of most firm's financial wherewithal and even expertise to hire a team of risk analysts to constantly be monitoring the financial health of their customers. That's just not realistic, right?


Alix McCabe: Right.


Justin Seedorf: If you're a trucking company, your expertise is in providing transportation services. It's not in credit risk analysis. So finding a tool or a resource that can provide that monitoring for you and give you proactive updates when necessary, but something that you don't actively have to be engaged in.


Alix McCabe: Got it.


Justin Seedorf: Does that make sense?


Alix McCabe: Yeah, it makes perfect sense.


Justin Seedorf: Yeah. So that's going to be the best course of action for any company. And as we heard Aaron say, they did the best they could with the resources and tools that they had available to them. And like we have seen over and over again, people let their guard down with customers that they've been doing business with for any period of time where they've consistently got paid. They think that means everything's going to be okay, and that they're going to keep getting paid that way until something happens.


Alix McCabe: So what would you say that a company could do before they actually run into an issue with a customer to shore up their protection?


Justin Seedorf: I think that there's a lot of tools out there that some companies are aware of. There's some that companies aren't aware of. One of them is like a letter of credit. A letter of credit is, basically, it's a security instrument that companies will tell their customers, " Hey, if you want this $ 500,000 credit line, you need to post a letter of credit from your bank that says you're good for it." What that does is it allows the supplier in the event of a default to go to the bank and say, " Hey, my customer didn't pay me. They said you would vouched for them. Here's this letter of credit. I want my $ 500,000." So that that's one way you can proactively shore up protection on that credit line or that credit risk, but sometimes that's really cumbersome. It's costly, especially for your customer. And so it might make you really uncompetitive, and it's just not a realistic expectation, especially for your everyday customers. That's typically reserved for their larger international transactions.

 But really, the reality is the only way that they can shore up truly their AR and protect themselves from an event like Aaron experienced is to ensure their accounts receivables. That exposure that they have with their customers for the money that's owed to them can be protected with a trade credit insurance policy. And that way that if your customer doesn't pay you, you're going to get paid by the policy.


Alix McCabe: So it's peace of mind too.


Justin Seedorf: It's peace of mind, but what they don't realize until they get the policy in place is it actually helps them make new decisions, new customers. As they're coming on board, they can use our database, our system, to vet the credit worthiness of those customers. Within our database, we rate companies on a scale of one to 10. Really easy for anybody to understand. A one is a really strong company like an Amazon. Pretty healthy, not worried about their ability to pay you back. A 10 is going to be a bankrupt company, like a company that's literally in the process of bankruptcy. So with our system, our program, a policyholder is not only protected from what they've already sold to their customers, but as they bring on new customers, they're able to make educated decisions on who to partner with from a business relationship standpoint based off of the credit worthiness of those customers.


Alix McCabe: And that rating system that you're talking about, it's not just like a program, like a computer program running the background, it's actually people as well, day- to- day assessing credit risk, right?


Justin Seedorf: Yes. So it's actually a combination of things. We do have over 2, 000 risk analysts and risk underwriters globally that work on that database exclusively, in that database adding to the risk scores. They're the one doing that analysis, but we also have 30 data scientists, and they employ artificial intelligence and machine learning to also give real- time monitoring and updates to a company's liquidity. That is something you cannot get from a D& B report. In real- time, our policyholders can see what their customer or potential customers' ability to repay their debts is. That's a game changer for most companies who are used to using, quite frankly, antiquated processes for their credit risk monitoring.


Alix McCabe: Very cool. Well, thanks for your thoughts. Justin. I'd now like to bring Aaron back into the conversation to tell us how this all played out. So Aaron, you didn't, I believe, have insurance in place before this client fell on hard times.


Aaron Sanders: Correct. We didn't have insurance at the time, and a lot of late nights scouring the web and looking for solutions and just trying to determine, and we weren't familiar with AR insurance.


Alix McCabe: Which is pretty common. I think a lot of business owners are not super familiar.


Aaron Sanders: Right. Right. And I certainly wasn't. And a couple of our peers, actually, our banker was like, " Hey, have you ever looked at that? I'm surprised you hadn't." I'm like, " Well, thanks for the knowledge now." Bt so I'd looked up a couple of companies. Allianz was there and followed up within I think it was just a few hours. We scheduled a call and the crash course began.


Alix McCabe: And so did you partner with Allianz in that particular case on debt collection services, or what was the relationship like at that point?


Aaron Sanders: So right away, that was the topic of discussion. Of course, Allianz did a deep dive and looked at everything. I think we just ran an AR report and said, " Here's who we do business with and at what level." What we really needed to hear was, " Stop. Stop taking any new business. Stop continuing to expose yourself." And had we not heard that, we would've continued down that path of getting paid a little bit, doing a little more work, getting paid a little bit with each transaction or interaction, exposing us just a little bit more beyond where we already were.


Alix McCabe: Keeping on that note for one minute longer. How would you say, if you were to summarize working with Allianz, it sounds like it's helped you to improve your business and maybe your decision- making practices?


Aaron Sanders: 100%. If it's all right, I'll touch on a couple of things that really just opened up right away, and that was the ability to extend additional credit that we had no way to know that would be a smart decision. Another thing to touch on would be international visibility. All of the credit bureaus I listed don't offer a solid look on international companies. And with Allianz being global, we feel good about it. Yeah, the cost is there for the service, but it is beyond paid for itself. So when it's time to do rate review, I'm probably just going to sign it. But you know, play hardball there for a second.


Alix McCabe: Of course, of course.


Aaron Sanders: I mean, I don't want to tie this up and it was phrase, but as a business owner, if you don't have this, you're operating at a risk level that you just have no idea how exposed you are.


Alix McCabe: That's a really good way to summarize it. I like hearing that the partnership helped your company in so many different ways. I think that's really awesome.

 So we're running low on time. I know you both are busy gents. So before we wrap up, I would like to give each of you a chance to share some takeaways from the conversation. We'll give Aaron the final words. So Justin, you're up first. What words of wisdom would you offer to other business owners when it comes to managing risk?


Justin Seedorf: Yeah. Well, I would say that... I mean, first of all, that's kind of a loaded question, Alix. There's all types of risk out there, but as it pertains to specifically like what Aaron was talking about and Red River Logistics dealt with, that type of non- payment risk, or credit risk as we call it, that really is something that seriously needs to be addressed. And I think most business owners, they don't even understand what the true risk is until it's too late. You've heard the old adage, you can't ensure a burning building. You have to have the policy in place before the building catches on fire, right? So that's the first step is, you just have to be a realist. You have to realistically look at your customers. It does not matter how long you've been doing business with them or how well you think you know them.

 If a situation arises that's out of their control and they're forced into bankruptcy or they have to choose between their business surviving and paying you, they're going to have to make that tough decision, and you're going to be left holding the bag. And so it's not anticipating that your customers can't pay and thinking that they're all deadbeats, it's actually a really sound, proactive approach to making sure that you can be aggressive with your customers knowing you're going to get paid by the policy if your customer can't pay. So that gives you the confidence to do business with them and to offer them open terms, to offer them higher credit limits because you have the protection backing it up from any potential bad debt. It's about being proactive. And you can only do that by employing tools like an Allianz Trade Credit Insurance Policy that leverages artificial intelligence and machine learning to monitor and predict where defaults are going to happen. The best defense is a really good offense.


Alix McCabe: I've heard that before. Was that unique to you, that quote?


Justin Seedorf: Yeah, I coined it actually. I put it on a T- shirt.


Alix McCabe: Thank you, Justin. So Aaron, what would you say to other business owners who might listen to this podcast and think, " Listen, this can't happen to me. I don't need help. I don't need protection."


Aaron Sanders: Gosh, so many things. But most importantly, your process can be strong, your confidence can be there, and credit can be an afterthought. And you want to say yes so bad because those big jobs come up and could change your business or allow you to scale up and grow, or just anything that could be a windfall for you. But if you're not following the process, it could also be the flip side of that coin and the worst decision that you've ever made, so get with somebody that has insight beyond your scope. And as I've mentioned several times, the big guys in credit monitoring are not enough. You've got to get something insured, some type of policy, insurance, whatever you want to call it behind you. And Allianz is a great place to start.


Alix McCabe: Thanks, Aaron. It's been really amazing to hear how your company turned what was a very challenging situation into an opportunity to actually elevate your business and improve its resilience over time. So I really thank you for sharing your story with us and for being part of Wheel of Risk.


Aaron Sanders: Absolutely. It was fun.


Alix McCabe: I have one more thing to ask you before we go. Would you mind spinning the wheel so you can help us pick our next episode?


Aaron Sanders: Let's do it.


Alix McCabe: Okay.


Aaron Sanders: All right. Here we go.


Alix McCabe: Here we go.


Justin Seedorf: What's it going to be? Ooh.


Alix McCabe: Oh, wow. You've landed on, we're going to need a bigger boat. A story about how a wire and cable distributor in New York needed help landing some whale size clients.


Aaron Sanders: Interesting. Can't wait for that.


Alix McCabe: My guest today has been Aaron Sanders, the founder of Red River Logistics. I'd also like to thank Justin Seedorf, Regional Vice President here at Allianz Trade Americas. Thank you both.


Justin Seedorf: Alix, yeah, you're welcome. And Aaron, thank you for jumping on with us too.


Aaron Sanders: Yeah, absolutely. Thanks guys.


Alix McCabe: I'm Alix McCabe, and this is Wheel of Risk, brought to you by Allianz Trade. Thanks so much for listening to this episode. And if you enjoyed it, which we hope you did, give us a follow wherever you get your podcasts. Talk to you soon.