Why Cash Flow Problems Exist In The Trucking Industry And How To Solve Them
Posted on: 3 November 2015
Cash flow problems are one of the challenges many businesses face, including trucking companies. If you operate a trucking company, you might experience cash flow problems often, even if you have plenty of business. Cash flow problems can create a plethora of other issues; however, there are steps you can take to solve this problem. The first step is understanding why this issue exists in your company. The second step is understanding the problems this creates, and the final step involves changing the way you handle your accounts receivable (AR) accounts.
Why Cash Flow Issues Exist In Trucking Companies
Cash flow issues are not limited to trucking companies; however, they are common with trucking companies because of the way trucking companies operate. A trucking company's revenue comes from vendors and customers that pay the company to ship goods. When shipping takes place, it takes time. The driver must pick up the goods from one location and deliver them to another. Depending on the distance, this could take days.
This in itself does not create the entire cash flow problem, though. The cash flow problem for your trucking company probably exists from the terms you offer these vendors and customers. If you give them 30 days, or longer, to pay the freight bills they owe you, it could create a problem. In addition, it is likely that you will encounter customers that do not pay their bills on time.
Problems This Leads To
If you are experiencing cash flow problems, you should take this issue seriously. According to research, more businesses are failing today from cash flow problems than ever before. A lack of positive cash flow could lead to difficulties paying your short-term expenses, including:
- Rent
- Insurance
- Payroll
- Utilities
- Fuel
In addition, a shortage of positive cash flow could make it hard for you to keep up with maintenance and repairs on your trucks. If this causes your trucks to break down, you will begin losing revenue, because you will not be able to provide the same amount of services as you once did. Having a positive cash flow is a necessity, especially with the cost of fuel.
Ways To Change Your AR Problems
As you begin to understand why this issue exists and the problems it can create, you may want to take action to change this issue. This is something you can do in several ways, but you may want to begin with a simple step. This step involves changing the terms you offer your customers. If you currently offer 60 days to pay their bills, reduce this to 15 or 30 days. This could help you bring in more cash quickly.
If this does not help, there is another option that works well for trucking companies, and it is called factoring. A factoring company for trucking businesses is a business that will purchase your AR accounts. In other words, when your vendors owe you money, you can collect this money right away by selling the accounts to a factoring company.
This solution works well, because it allows you to turn your invoices into cash whenever you would like. You could do this for past-due invoices only, or you could make a habit of selling your invoices daily or weekly. In either case, it will improve your cash flow, because you will receive cash right away for the freight owed to your company.
If you would like to learn more about how factoring works for trucking companies, contact a company that offers factoring services, such as Factor Loads. This could be the best decision you have made in a long time, and it could be the solution that helps you save your company.
Share