How do trucking companies make money?
The basic principle is simple; trucking companies make money by driving loaded miles and charging a higher rate-per-mile than the company’s cost-per-mile. The greater the difference, the greater the profits. In reality, it’s a lot more complicated than that. If the ideal is to keep trucks moving with paying loads, the difficulty is finding loads and having the resources to keep equipment moving.
As the saying goes, it takes money to make money. Along with driver concerns and finding loads, funding is one of the top worries that occupies the minds of truck company owners on a daily bases. Yet finding a solution to easily access working capital is no longer the difficulty it once was.
Why is cash flow so hard to manage?
Cash flow is hard to manage for two simple reasons: heavy daily operational expenses and slow-paying customers. But it doesn’t have to be so difficult. Financial solutions specifically for the trucking industry have changed the landscape and cleared the way for fast reliable funding.
Cash flow is the movement of money into and out of a business. If your trucking company has more money coming in than going out, it is in a state of positive cash flow. In this situation, liquid assets are increasing and the company is well positioned to pay bills, support operations and show profit. However, most trucking companies struggle to maintain positive cash flow and need a funding solution to maintain operations. Your company’s capital structure (the way it finances operations) has a huge impact on profitability.
The trucking industry is known for slow-paying customers, slim margins and high operating expenses, a difficult mix to maintain positive cash flow. For this reason, financial strategies and funding solutions designed specifically for the trucking industry are available to improve your company’s cash flow and enhance profitability.
Cash flow is affected by ongoing trucking industry issues
Business dynamics have grown increasingly complex for trucking companies. Greater competition in the marketplace and increasing demand to incorporate emerging technologies place heavy burdens on lean operations. To make matters worse, the COVID-19 pandemic has impacted working conditions considerably adding to the challenges the industry faces:
- Operating in an economy under stress
- Managing roller coaster freight volumes and rates
- Maintaining a productive and safe driver pool
Due to their disruptive nature, these issues (and more) affect your trucking company’s cash flow. But, with proper planning and preparation in place, your trucking operation can grow and prosper as the country’s economy improves.
React quickly and efficiently to opportunities
Economic forecasts predict a variety of future developments from mild recovery to rapid economic growth in the next couple of years. As the nation’s economy seeks revival, volumes are expected to grow. For trucking companies that are positioned for growth, this is an exciting period. Trucking companies that react quickly and efficiently to emerging opportunities that will capitalize the greatest and benefit with the most profitability.
Efficiency is the key to trucking business profitability
As demand increases, trucking companies need to ramp up operations. Maximizing equipment utilization to operate at peak capacity is the key to enhanced profits. This means greater operational expenditures upfront and lagging invoice receivables as customers take their time settling accounts. Even the most successful trucking companies go through periods where their outgoing cash requirements exceed cash-on-hand. This lag in outgoing expenses versus incoming revenues is a normal problem for both struggling operations and growing businesses. Now is the time to take action and set up your trucking business for success.
Top ways to improve cash flow for your trucking business
In trucking, time is often the enemy. Customers demand delivery on time, yet take weeks and months to pay their invoices. Meanwhile, costs continue to add up as operations roll on. Waiting 30 to 60 days for invoices to be paid is too great a drain on financial resources; strategies to speed up the process are essential. Following are the most successful tactics for reducing DSO (Days Sales Outstanding – the time it takes customers to pay invoices).
Due Diligence: Every new customer, including each load acquired from a load board or freight broker, is a potential credit risk. They may be slow to pay, or worse, not pay at all. Do your due diligence and verify the shipper/broker’s ability to pay before you haul. The fastest, easiest and cost free way to manage this task is to use an online credit check tool. Decide how much credit you’re prepared to offer them and set a time limit for payment.
Invoice Quickly and Follow Up: The importance of getting your invoices paid faster cannot be overstated. Make it standard practice to invoice your customer immediately after a load is delivered. Follow up to confirm the invoice was received and if payment is late, follow up again.
Immediate Payment: In trucking, the solution to create positive cash flow is immediate payment. There is a huge difference between “quick pay” solutions and immediate payment with freight factoring. Quick pay is a one-on-one arrangement between your company and the shipper/broker to provide fast payment (usually within a week). This arrangement only applies to loads booked from the shipper/broker with whom you have the arrangement. Unless it comes from another quick paying broker, you will have to wait the full 30 to 60 days for payment on loads acquired from other sources.
Freight factoring is a faster, more flexible solution to create positive cash flow. All verified invoices sent to your approved customer base are converted into immediate cash, usually within hours. It is the fastest, easiest way to get paid, eliminating the wait and worry of collection. Working with a freight factoring company allows you to focus on running operations rather than chasing customers for payment. It is a cost-effective funding solution that’s easy to manage:
- Immediate payment on invoices issued to any of your approved customers
- Professional accounts receivable management included
- Convenient, easy-to-manage accounting with full transparency and reporting
- Additional cost-saving services available
Invoice factoring is a growing trend worldwide. In the North American transportation industry, factoring freight bills is now common practice for both small trucking companies and larger fleets. With immediate access to revenues, trucking companies can operate at their most productive levels; efficiency is the key to profitability!