One of the great myths about trucking and other service businesses is the idea that if you are profitable, you are doing all right. A healthy balance sheet is good, but having enough cash on hand to run your business is absolutely essential.
In trucking, where you must sometimes wait as long as two months between a completed haul and payment, building up adequate cash flow can be challenging. Here are six ways to quickly generate enough working capital to operate and expand your company:
Factor Your Receivables
Many trucking companies use factoring (also known as “accounts receivable financing”) as a quicker, easier alternative to a banking line of credit or other financing. A factoring provider can advance cash on your invoices within 24 hours, allowing you to quickly build up cash flow. You receive the balance of the invoice value, minus a small fee, when the factor receives payment from your customers. Not only does factoring allow you to turn your trucking company’s invoices into cash within a day, it also handles collections and other back-office work for your company.
To learn more about how to factor, read RTS Financial's free resource, Your Complete Guide to Factoring.
Use Fuel Cards and Other Loyalty Programs
There are two key advantages to signing your fleet up for a fuel card. First, the card provides discounts on fuel, maintenance and other purchases. Secondly, most cards provide detailed monthly reports on transactions and let you set restrictions on purchases. This eliminates the risk of your drivers fudging on their expense reports and costing your fleet more money. The per-gallon price of diesel is low right now, but you could always be paying even less. The best fuel cards offer average savings of several cents per gallon. Over the course of a year, those savings can free up thousands of dollars to help you meet other company expenses.
Check Credit Information
Shippers and freight brokers go belly-up all the time, leaving a trail of unpaid invoices. To guard against payment default, you should regularly check the credit ratings of the companies you serve. A low or declining credit score could mean that a customer or broker is in financial trouble. Armed with this information, you can decide if it is worth taking the risk of doing business with these companies. You do not necessarily have to pay for access to credit information. Some factoring companies and other financial providers offer free credit scores and days-to-pay information on thousands of brokers and shippers.
Evaluate Your Insurance
Insurance can be one of the biggest fixed costs for trucking companies. Is your company paying more on insurance than necessary? You should evaluate your fleet’s insurance policy at least once a year. If cash is tight, you might consider raising your deductible to lower your monthly premium payments. You will need to balance the advantage of a lower premium with the risk of future insurance claims.
Also, regularly checking your company’s credit rating is a good idea. If your credit rating improves, you could lock in a better insurance rate. Finally, it is always a good idea to shop around among various insurance providers. Can you get a better deal from another insurance company for a similarly solid policy? The answer is often “Yes.”
Cut Unnecessary Expenses
Another way to quickly build more cash flow is to cut spending that does not necessarily benefit your company. Take a critical eye to fixed costs like office space, payroll, equipment agreements and service providers. Can you lease a less-expensive property for your headquarters? Can some of your back-office work be outsourced to a third-party company? Even something as simple as switching telecom providers can potentially save your company hundreds of dollars per month.
Stay Liquid
When business is good, it can be tempting to pump your profits into newer equipment or additional headcount. However, it is also wise to put a portion of that extra money into investments that can be easily liquidated when you need the cash. Work with a certified public accountant (CPA) or a financial planner to build a portfolio of stocks, bonds and other holdings where your money can grow until you need it. Another approach is to invest some earnings into real estate, though the volatility of that market might mean you have to cash out when your holdings have lost some of their value.