What Is The Best Cash Flow Solution For Your Trucking Company?
Updated: Dec 4, 2020
Running a trucking company can present itself with several cash flow issues. It's important to compare cash flow solutions for your trucking business so that you can solve any issues or increase your business cash flow. There are a few common reasons for cash flow problems:
Lengthy pay terms: Typically, payment terms in the trucking industry are 30 to 90 days. This pay gap is especially difficult for owner-operators and small trucking company owners to keep up with operating expenses.
General overhead expenses: Overhead expenses can include paying dispatchers and for back-office assistance. These expenses start to add up and can dip into cash flow, especially if it takes days to pay you.
Business operating expenses: There are fixed costs like fuel costs, driver pay, insurance premiums, and all authority fees. Then you also need to account for unexpected repairs and maintenance.
Trucking taxes: Quarterly and annual taxes can also dip into your cash flow.
These situations can all lead to cash flow problems if you don't have your business finances in order.
Cash flow solutions:
Trucking factoring is the process of receiving payment quickly from your unpaid invoices to improve business cash flow. It works when a freight factor purchases your company's account receivables at a discount and advances you the money (typically within 24 hours). Once the trucking company has sent their freight bills to the factoring company, the factor pays the invoice amount up front and then waits to receive payment from the freight broker.
Working with a freight factor eliminates waiting 30 to 90 days to get paid for a load. In addition to freight factoring improving and increasing your cash flow, they provided other benefits like offering free fuel cards, free credit checks on customers, and customer service for all your business needs.
Quick pays are very similar to freight factoring as they get you paid quickly for a small fee. The difference is that you can only use quick pays with shippers or brokers that offer them, and not all of them do. If you're reliant on quick pays, sometimes you have to opt for a lower cost per mile load so that you can get paid on time.
Bank loans are another option to help improve cash flow problems. If your business is in good standing, then getting a bank loan shouldn't be an issue. However, if you have a low credit score, it may be a little more difficult to obtain the loan you need for your business. It is even more difficult if you are just starting a trucking company. Most banks will not approve businesses with little to no credit, and if they do, the interest rates will be extremely high. In these instances, freight factoring is the best solution as it is based on your customer's credit score, not yours.
What is the best cash flow solution for your trucking company?
It all comes down to your financial situation and personal preference. However, both quick pay and bank loan options are limited. If you use quick pays, you're restricted from what customers you can work with. If you get a bank loan, you will end up paying more as there is interest.
Freight factoring is a great cash flow solution for all trucking companies. You get paid in 24-hours on every invoice you send it, and since it is not a loan, there is nothing to pay back. For more information on how you can start factoring your invoices, apply here.