Factoring Companies Guidebook
Hub & Spoke
Definition
Where a distributor/haulier will collect goods from sites within a region (the spoke) and deliver them to a central warehouse (the hub). It may then pick up loads from the warehouse for delivery within its area, on behalf of others.
See Also: - "Contra Trading", "Trade Associations", "Warehousing & Storage"
Concerns
These networks are attractive to regionally based haulage and distribution companies. These companies enter into an agreement with a trade association, which then acts as a warehouse-keeper, agent and debt collector for them. The hub collects payments on behalf of its members and settles their accounts on a monthly basis by means of exchange of cheques. The particular risk of this type of business is contra with the debtors paying the hub in preference to us. Historically, there is generally a high level of disputed debt in this area.
Identification
Determine the nature of the business and make enquiries of the Client as to their method of operation and whether they engage in this particular type of trading and its extent as a percentage of its total business.
