The popularity of cargo sprinter vans and hot shots has increased significantly in recent years. Sprinter vans and hot shots provide expedited trucking services geared toward the pickup and delivery of ultra-time-sensitive LTL freight. It is an owner-operator-dominated business with relatively low market entry costs compared to a class 8 long-haul semi-truck-based business. Though it’s still a relatively small segment of the transportation industry, this form of freight hauling has steadily grown in market share. If managed efficiently, it is an ideal business model for independent operators to start up quickly and run profitably.
If you’re considering the sprinter van and hot shot business, read on to learn how to establish a flexible financing structure designed to support this kind of operation.
It can be a highly profitable business
The steady growth of cargo sprinter van and hot shot hauling is attributed to growing market demand for priority shipping, and the higher rates operators can charge for this type of dedicated service. It is a relatively easy business to start up and run, but it is not without challenges. Limited load capacity of this vehicle class restricts the size and type of cargo that can be transported. For this reason load acquisition strategies tend to focus on time-sensitive, project-critical loads like agricultural equipment, construction equipment and materials, heavy machinery, and marine vessels that command higher shipping rates. If you can successfully create a steady flow of hot shot loads, this type of freight transportation can be a highly profitable business.
The key to business success is agility
The hallmark of a well-managed sprinter van and hot shot business is agility – the ability to respond quickly to load acquisition opportunities requiring fast, dependable service. In this type of trucking scenario, agility is often determined by the company’s financial strength, as a continuous positive cash flow stream is essential to support expedited service. This means always having funds available to purchase fuel, upkeep maintenance, manage repairs on time, and maintain insurance, taxes, and debt obligations. When this happens, the business can maintain maximum operational efficiency and have the agility needed to react quickly to hot shot load postings.
Why is positive cash flow difficult to maintain?
Having positive cash flow means having more money coming into the business than costs going out. It begins with profitable hauling but ultimately is determined by how effectively the company manages its collections.
Many financial experts consider cash flow to be the most critical component of a business’s financial health. Profitable loads are essential to fund the company’s working capital needs, but this benefit can not be realized until customers pay their invoices. Too many companies are profitable on paper but are starving for cash due to uncollected receivables. To put things into perspective, more than 80% of business failures are due to cash flow issues.
The over-the-road freight transportation industry is notorious for having low-profit margins and slow-paying customers – a deadly combination that negatively impacts cash flow and too often results in business failure. Although margins can be much higher in the industry’s sprinter and hot shot sectors, positive cash flow remains a significant challenge to many operators. The ability to speed up the collection of customer payments to create positive cash flow is essential to maintain operations, pay bills, pay yourself, and outperforming competing businesses.
How to expedite cash in hand?
Sprinter vans and hot shots need a flexible financial structure to succeed in a competitive industry facing harsh economic conditions. Fortunately, freight factoring is a mainstream alternative financing option that aligns very well with the needs of hot shot operators. It is the selling of invoice receivables at a discount in exchange for immediate payment. In this transportation segment, fast access to the working capital you need when you need it translates to agility and speed of service.
Here’s how freight factoring works: As soon as a load is delivered to a customer, the operator sends a copy of the invoice to the factoring company. The best factors in the industry process each funding request and transfer funds directly into your business cash account as soon as the invoice is verified.
This alternative funding solution features easy qualification requirements, fast funding, and convenient account management. With a mobile app to manage transactions, an operator can deliver a load, issue an invoice, and monitor payment within minutes, all from the convenience of your driver seat. With instant payment, your operation has the cash in hand to quickly redeploy for your next haul. This agility will strengthen your service response times and help you outperform the competition.
Additional features and benefits of freight factoring
If lightning-fast payment of invoices to create instant positive cash flow is not enough of a benefit to spark your interest – hold on because there’s much more!
The following are some of the additional features and benefits of freight factoring to help finance your company’s growth:
- Expandable credit limits: As your receivable volumes grow, your trucking business becomes eligible for increased credit limits to keep funding aligned with your company’s growth rate.
- Discount fuel program: The best freight factoring companies provide robust fuel cards with significant discounts on the cost of diesel at truck stops across the nation.
- Cost-free accounts receivable management: The factoring company provides a professional and experienced collections team, free of charge, to relieve you of the responsibility of having to chase customers for payments.
- Online tools and calculators: track profitability and each customer’s ability to pay before you haul with easy-to-use tools and calculators that include the following:
- Free credit check tool: Know your customers’ ability to pay before you haul.
- Profit and loss calculator: Quickly calculate your company’s profit margin on loads before you commit to a haul.
- Cost-per-mile calculator: Set profitable freight rates based on knowing your company’s unique cost-per-mile.
Conclusion
Sprinter van and hot shot freight can be lucrative: that’s why it’s a highly competitive industry. Having the financial strength to respond quickly to hot shot load opportunities will be essential to outperform the competition, maximize equipment utilization, and increase business volume.
Positive cash flow is essential to maintain maximum operational efficiency and provide the agility needed to succeed. Freight factoring is a mainstream financial strategy commonly used in the transportation industry to fast-track incoming cash. Qualification is quick and easy for freight transportation companies with creditworthy customers.
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