According to a US Bank study, 82% of businesses fail due to poor cash flow management. Not because they cannot attract good clients or produce top quality goods or render excellent services, but because they have a cash flow problem. On the freight logistics industry, there is no difference. No one starts a trucking company or any other business and plans for failure. When starting a freight hauling or logistics company, the path to success should be simple.
First, purchasing or leasing the right equipment is critical, as this will be the basis of your day-to-day business: taking cargo from origin to destination on-time and as efficient as possible. If you have an old truck, it will consume more fuel and oil, both of which make up for the majority of your fixed costs. An average owner-operator typically spends within the range of $50,000 to $70,000 on fuel. To figure out how much you’ll be spending on fuel, calculate your average cost per mile (fuel cost per gallon divided by average MPG) and then multiply it by the number of miles you are expected to run.
Second, find good paying clients. If you have a client that pays a good rate per mile but takes 60-90 days to pay, it will delay your cash flow unless you have sufficient money to maintain yourself on the road.
Finally, make sure that the clients you decide to haul for, have a good paying record and will give you constant work and pay you market prices. Even if everything is in the right place, it may still prove difficult to keep cash flowing. Considering that a delivery may take around a week, and payment will come 1-2 months after the delivery is made, something simple like filling up gas becomes challenging if you don’t have the right amount of cash flow.
Everything from fuel costs, to truck payments, and unexpected repairs can constrict if not, totally halt your cash flow. And this is not even considering your drivers’ pay, if you have others working under you. You will need to pay these drivers, as well as any other costs that you may incur as a result of having additional employees and trucks. These are all things that may reduce your cash flow one way or the other. Luckily there are ways to prepare for tough times or avoid them all together.
Exploring the advantages of freight factoring
Even though we do not plan to be caught in tough times, we should always be prepared. Freight factoring is a financial tool that allows carriers to get cash payments for their receivables or loads, as soon as they are delivered. The service usually offers free credit checking to provide information on whether your clients are reputable companies and comply with the standard regulations for a trucking business. A credit check will ensure you are hauling for solid customers that have the ability to pay, while taking the loss in the event that they don’t. This is called non-recourse factoring. Factoring companies understand the needs of its trucking clients and offer multiple solutions that can help keep your cash flow steady.
In addition to this, experienced professionals can also assist you with any questions regarding the accounting side of the factoring transactions in your books and guide you to make the right decisions for your business. Freight factoring specifically, is a financial solution that guarantees the growth and success of many trucking businesses, since it is an effective way to ensure cash is always at hand.
Fuel card programs
Many factoring companies also offer fuel card programs, with no setup fees, which will allow you to save substantially on gas prices and tank in as many as 1,500 truck stops across the country. Fuel cards can help you save up to 3% on fuel, and are accepted at over 19,000 locations nationwide. Discount fuel cards programs like EFS, have a participating discount network that includes TA, Pilot, Petro, Love’s Flying J, among others. It also offers 24/7 customer service team, as well as online account management. By using this card you can save thousands of dollars a year, ensuring that fuel will never be the cause for a delayed delivery.
The point is, your business needs to keep running even if payments have not been received. Freight Factoring offers truckers immediate advances of up to 98% of their eligible invoices and up to 50% of fuel advances after load pick-up. Solve current cash flow problems with factoring, ensuring that deliveries arrive on time and operational costs are always covered.