If you’re a business owner in trucking, whether you’re managing a fleet or hauling loads yourself, there’s a powerful financing tool available that is well worth becoming familiar with – revolving line of credit. A revolving line of credit (RLOC) gives you ongoing access to funds to protect your trucking business from unexpected cash shortfalls. It provides the flexibility to spend on credit month over month without lender oversight.
This form of credit is not to be confused with a traditional line of credit that you might obtain from a bank. A revolving line of credit (RLOC) is a far more dynamic product. It’s a highly flexible financing option that acts like a credit card in that when companies pay down their balances, that credit is then available to borrow again. However, unlike a credit card, it is not a payment tool used to purchase goods or services – it acts more as a source of overdraft for your business’s cash account. Revolving line of credit (RLOC) used in this fashion is a unique funding opportunity for the transportation industry with only one provider in the market.
A RLOC is a highly flexible funding source providing the financial strength to overcome the unforeseen circumstances that every trucking company faces during its years of service. When managed efficiently, a RLOC is a cost-effective source of additional working capital. Trucking companies that utilize RLOC have a competitive advantage in that they have an established financial source above and beyond their recognized credit limit – more money equates to greater operational agility.
Let’s take a closer look at RLOC to explore its benefits and discuss good management practices that can help you ensure positive outcomes.
A brief introduction to eCapital’s RLOC
RLOC’s are a unique industry innovation from eCapital that can increase client credit limits above and beyond their established factoring facility limit. It is managed through the eCapital Connect platform, a financial hub that provides factoring clients with more control over when and how they can access their funds. All trucking clients of eCapital are automatically eligible for a RLOC – to get started, all that is required is for them to activate the account.
Here’s how a RLOC works for eCapital’s freight factoring clients:
- Invoices are submitted for financing, and funds are transferred to the client’s factoring cash account as soon as documents are verified – usually within a few hours.
- Using the eCapital Connect platform, clients can access money from their factoring cash account by instantly transferring funds to their external bank, or by use of Visa commercial cards.
- If Visa commercial cards are used to draw funds from the cash account, only a small transaction fee is applied – there are no interest fees charged.
- If Visa commercial cards are used, but insufficient funds are available in the cash account, then the necessary remaining funds are drawn from the RLOC. The RLOC becomes an additional line of defence against cash flow disruption. A small fee is applied for the transaction, and RLOC payments become due on the next billing date.
- Occasionally, factoring clients experience disputed, unpaid, or short paid invoices from their customers. In these events, recourse factoring clients need to return advanced funds to eCapital. These funds are withdrawn from the client’s factoring cash account. If this activity creates a negative balance in the client’s cash account, funds are automatically withdrawn from the RLOC to reconcile the shortfall. This automation acts as overdraft protection to keep the clients factoring accounts in good standing, which in turn enables uninterrupted funding to continue.
- Clients have full control to withdraw funds or make payments to their RLOC account 24/7.
When used effectively, a RLOC provides a stronger financial lifeline to increase the financial agility of a trucking company. It is a highly transparent source of capital with real-time tracking and regular reporting to monitor transactions, balances, credit limits, and more.
How is RLOC different from a traditional credit line?
In short, a traditional line of credit is a one-time loan that allows the borrower to access funds, usually for a stated purpose. Available balance, once used, is not made available again as payments are made. The credit line is closed once the available balance is exhausted and the loan is fully paid off. To access additional funding, the borrower must reapply for another line.
Contrary to this relatively static arrangement, RLOC is a flexible arrangement that stays open until either the lender or borrower closes it. Amounts borrowed can be repaid and borrowed again for as long as the account is in good standing. The facility’s credit limit can be increased as your business expands, and funds can be utilized for whatever best benefits the company.
This unique financing option allows clients to access working capital beyond their approved factoring facility credit limit without having to go through a lengthy approval process to get the needed cash infusion.
Why and where should you use a RLOC?
It’s the nature of the trucking business – things you can’t anticipate happen all the time. At some point, virtually every trucking operator will find themselves in a position where they need extra cash flow immediately. RLOC’s are a tool in your company’s lineup of available financial resources. It can be used to expand your business when a sudden influx of cash is needed, or it can be kept in reserve and used to safeguard the company in the event of unexpected cash flow problems.
A survey of eCapital clients revealed that RLOC funds are often used to manage emergency roadside expenses, including breakdowns, accommodation, tolls, fees, fines, and unexpected taxes. Utilizing these additional funds to take advantage of a purchasing opportunity, such as investing in new equipment, is another way our clients have used this form of operating capital.
The best stories we’ve heard about are the cases where the product helped an operator when they were in a pinch. Sometimes that extra cash flow is all that’s needed to keep the wheels turning.
Managing your RLOC effectively
The way you use credit can positively support your company’s growth or negatively impact its financial standing. It can also affect your ability to get other loans in the future. Fortunately, many companies experienced in using a RLOC have shared their knowledge. Their insights translate especially well into lessons and good advice for those relatively new to managing credit in this fashion.
Following are four rules of thumb to follow:
- Borrow only if your expenditure will bring you returns:Utilizing a RLOC is like managing an investment – balance returns against costs. Understand your means, keep your debt levels low, and have a repayment plan. It is a cost-free financial resource until it is drawn from. Payments and interest are not charged if you don’t use your eCapital RLOC and have a zero or positive factoring account balance.
- Effective cash flow management is crucial:Have the discipline to track your spending carefully by regularly monitoring your account to be aware of all transactions. Know when your monthly payments are due, how much they are, and be prepared to make all minimum payments on time.
- Build your credit rating: Your credit score is often cited to determine more than just the loans you can get, and the interest rates you pay. Insurers use credit scores to set premiums, and suppliers check scores before delivering on credit. Credit is the lifeline for your business – take every opportunity to increase your score. Don’t close old accounts – the length of your credit history matters. One of the factors considered by lenders is the different types of accounts you’ve had in the past and how well you’ve managed them. Also, think about having different types of credit accounts – an eCapital RLOC can add to this variety. Effective management of your RLOC will positively affect your overall credit rating.
- Don’t mix business with personal:Finally, crucially, do not mix business and personal finances. It is a common mistake that can have serious accounting, legal, tax, and profit implications. Ensure you pay yourself a salary and keep your personal expenses out of the business.
Is RLOC right for you?
If you are a trucking company owner committed to reliable customer service, you need all resources available to help ensure the dependable operation of your working equipment. Road-side breakdowns, sudden insurance premium increases, and exhausted cash reserves are typical examples of financial distress that can halt operations. Trucking companies that have the flexibility to draw on additional funding, when needed, to keep their trucks moving have a competitive advantage. If you manage your trucking company with fiscal responsibility, a RLOC is a powerful financial tool you want in your toolbox.
The most operating capital – your competitive advantage
Even a minor cash crunch can amplify to the point of causing operational disruption. Having the most operating capital available and accessible 24/7 is the best strategy for trucking companies to keep moving – assuming the capital is managed responsibly and effectively. When unhindered by funding restrictions, trucking companies can perform nimbly in downturn periods and growth environments – a competitive advantage in a competitive industry.
A RLOC provides fast, easy access to additional working capital when needed to bridge any gaps in day-to-day business cash flow. It is an option to help trucking operators keep fuel in the tank and hauling despite financial barriers that are thrown your way. With 24/7 access to their cash account and the overdraft protection of the RLOC, eCapital clients gain complete control of their cash management. Trucking companies are no longer dependent on their factoring company’s business hours or the bank being open and willing to do business. In these situations, having access to a RLOC is a far better alternative to parking your truck until expenses are paid.
eCapital’s 25 year’s of experience and culture of innovation has combined to set a new standard in freight financing where trucking companies are paid at the click of a button. Our mission is to make the lives of truck company owners easier by making the complexity of funding disappear and placing the control of your company finances in your hands. eCapital turns the wait and worry of unpaid invoices into the ease and advantage of immediate cash.