Generally speaking, trucking businesses generate money by travelling long distances carrying freight at a profit margin greater than the company’s cost of transportation. Profits increase with the difference. In reality, it’s much more complicated. The challenge is finding loads and having the means to keep the vehicles going.
It takes money to make money. Along with driver problems and load availability, finance is a daily concern for truck business owners. This is where the need for cash flow improvement solutions come into play.
What Is Cash Flow?
Cash flow is the net cash received and disbursed by an entity during a given period. A positive cash flow is required to keep a company afloat and provide value for investors. A month, quarter, or year is used to track cash flow. With a positive cash flow, the corporation is well-positioned to sustain operations, pay bills, perform marketing strategies, and increase profitability. Yet, most trucking companies face difficulty in sustaining positive cash flow and require financing.
Trucking is known for slow-paying clients, small margins, and high operational costs, making a positive cash flow challenging. Because of this, trucking-specific financial strategies and funding solutions are made accessible to increase the cash flow and profitability of the trucking companies.
Below are some measures to follow to improve your trucking company’s cash flow:
- Use Either Quick Pay Or Freight Factoring
In the trucking business, it’s not unusual to wait 5–7 weeks for payment. Meanwhile, your money is being spent daily on items such as fuel, tires, repairs, maintenance—the list goes on and on.
The majority of carriers require a significantly faster cash flow to stay afloat. What are your alternatives, then? Typically, the decision is between quick pay and freight factoring.
Some brokers provide quick pay to help with cash flow. Instead of waiting for payment, the broker gives carriers cash advances in exchange for a fee. The timeframe in receiving cash varies. Some brokers pay you immediately, while others take days or weeks to pay you.
On the other hand, freight factoring is the process of selling the trucking business’ accounts receivable to a freight factoring company. It is usually sold at a discount to obtain immediate funds. The factor pays the invoices in advance and waits for payment at the end of the customer’s payment term. It’s a source of funding that commits to paying an enterprise the invoice amount less a commission and fee discount and is typically done within 24 hours. The cash advance on your invoices from a factoring company can assist you in swiftly developing a positive cash flow. When your customers pay the factor, you get the remaining invoice value less a small fee.
Factoring not only converts trucking invoices into cash in a day but also handles collections and other back-office tasks. This practice is also known as accounts receivable financing.
- Use Loyalty Programs and Fuel Cards
Signing up for a fleet fuel card has two major benefits. One benefit is having savings on fuel or maintenance. Second, most cards provide full monthly transaction records and provide purchasing limits. This reduces the danger of drivers falsifying expense reports and overcharging your fleet. Diesel is now cheap per gallon, but it could always be cheaper. The best fuel cards save you a few cents per gallon. Over the course of a year, those savings can add up to thousands of dollars.
- Boost Efficiency
Profitability requires efficiency. To avoid wasting time and money, use the latest technology and efficiency methods for your trucking business. ELDs or electronic logging devices are an excellent approach to increase your transportation company’s efficiency. Regular fleet maintenance will also increase efficiency and save your trucking company money. Also, online load boards or freight marketplaces allow transportation companies to quickly find new load opportunities, resulting in maximized earnings.
- Check And Monitor Customers’ Credit Information
Unpaid invoices from shippers and freight brokers are common. To avoid payment default, regularly monitor the credit scores of your customers. A low or unstable credit score may indicate financial difficulty. Provided with this data, you can evaluate whether doing business with them is worth the risk. You are not required to pay to get credit information access. Certain factoring services and other financial institutions provide free credit reports.
- Follow Up Invoices
Generally, when a consumer fails to make a payment on time, it is an honest mistake. However, a consumer who ignores an invoice can cause enormous problems for any company.
One of the easiest ways to increase profit margins is to follow up on invoices politely and professionally. Most clients pay their bills after one reminder. Providing the benefit of the doubt to a customer can also help you establish a good relationship with them.
It’s not easy to maintain a good cash flow. But with determination and commitment, it is possible.