There is absolutely no doubt that the COVID-19 pandemic has changed the way that billions of people across the globe do business, no matter what kind of specific industry or market they work in.
Not only has the shutdown of public spaces changed the culture of how we work, the economic shutdowns and subsequent recessions worldwide has also had a major impact on what businesses currently need to survive and thrive in the economy.
This has been especially difficult for industries and companies that rely on a healthy and consistent cash flow to operate normally and continue to grow. This certainly applies to the trucking industry.
One of the biggest misconceptions about the trucking industry and other similar service businesses is the idea that if you are profitable, you are doing a good job and busting out your competition. While a good-looking balance sheet is always something that is going to make you feel good about your business and how it is performing, having enough cash on hand at all times to run your business is absolutely paramount.
When it comes to trucking, businesses have to sometimes wait as long as two months between a completed haul and actually having the related invoice be completed and payment be made. For that reason, actually building up the type of cash flow that a business needs can be hard to come by.
That fact has become even more true during the COVID-19 pandemic.
Luckily, there are some fantastic ways for trucking companies and other companies in service industries to gain access to the cash flow they need in order to operate smoothly, make necessary payments on time and grow from year to year. Let’s get started!
Invoice factoring
Invoice factoring, which is also commonly known as receivable factoring and truck factoring is a highly popular form of funding that businesses within the service industry take advantage of.
When it comes to invoice factoring, businesses simply convert their invoices into immediate cash in order to cover their costs without taking on any debt. Basically, companies sell their invoices at a small discount to a factoring company and then get the immediate cash boost they need to fund their small business operations.
One fantastic aspect of invoice factoring is that unlike a bank loan, the funding that you receive will not be based on your credit. Instead, the primary decider when it comes to invoice factoring is the credit scores of your customers. That gives you a lot more flexibility to actually get the money you need if your company is already operating with debt.
Beyond that, invoice factoring allows you to get the money you need fast. In fact, you can expect to get a response to your application within a matter of days. From there, payment typically takes 24 hours! What’s even better is that there is no debt for you to repay.
The funding when it comes to invoice factoring ranges from $1,000 to close to $20,000,000. The truth is that the size of your funding is based heavily on the number of invoices you have. That means that invoice factoring can grow with your company. The more clients you have, the more money will be available to you.
Take out a bank loan
One of the most common ways in which all companies no matter the industry gain access to an influx of cash is by taking out a sizable business loan from the bank. Bank loans are common in many industries and for good reason. Most notably, bank loans can offer tens of thousands – or even in some cases – hundreds of thousands of dollars.
Bank loans can help in a major way if a company needs extra money on hand to make a major purchase or purchases, such as increasing storage area, office area, or in the case of a trucking company, adding to your fleet.
With that being said, there are some real downsides of bank loans that trucking company owners should keep in mind. First off, you are going to have to be okay with paying principal or interest over time and you will also find that the bank caps off the amount of the loan that you are able to take out that is less than you and your company needs.
Beyond that, the paperwork requirements are intense and the approval process can take several months before you actually get the cash that you need.
As is the case with most loans, business loans from the bank are based on your credit history. This can also be a major roadblock for companies that carry debt. Not only can it make you not able to gain approval for a loan, but if you do gain approval, you could be facing prohibitive interest rates that make the loan far more expensive than it should be!
Beyond that, bank loans and lines of credits for businesses will often carry what is called a loan covenant. What this means is that there are conditions attached to a commercial loan that require the company to fulfill certain financial performance requirements. If you and your business do not meet the covenant requirements, you can end up defaulting on the loan or line of credit. While the bank can waive this default, it can also end up being highly costly for you and your business.
Finally, one other thing to keep in mind when it comes to bank loans is that there will likely be some restrictions when it comes to what you can actually use the financing for. One example is that bank loans are often known to forbid companies from taking certain actions like purchasing or selling assets for your business, incurring other types of debt for any reason and more. For that reason, some businesses end up finding that a loan can offer them the resources they need to take a certain action, but restrict them from actually taking those actions!
Use Fuel Cards and Other Loyalty Programs
There are some really great advantages to signing your fleet up for a fuel card. First off, the card will provide your drivers and your entire company with sizable discounts on the fuel your fleet needs. You will also get discounts on maintenance and other purchases.
Beyond that, the vast majority of cards provide detailed monthly reports on the transactions and allows you to set restrictions on those cards. This eliminates the risk of any drivers using company money to purchase personal items.
Most importantly, however, fuel cards help you save up to a few cents per gallon every time one of the trucks in your fleet fuels up. Over a year, this can end up saving thousands of dollars for you and your company. Thousands of dollars that you can then use for other business-related expenses.
Check credit scores of potential customers
This might seem like a hassle and an extra step that you do not want to take, it can be highly beneficial to your business to check the credit scores and financial histories of new clients before you take the job on. A low or declining credit score can signify that a company is in financial trouble and could indicate that it will take time that you simply do not have in order to actually get an invoice paid.
Keep in mind that getting this credit information doesn’t always have to cost you money. In fact, some factoring companies and other financial providers will offer free credit scores and days-to-pay information on thousands of companies around the country.
Look at your insurance
There is no doubt that business insurance is crucially important to make sure that your assets are protected. This is especially true when your business depends on something like a fleet of trucks to be in tip-top shape in order for your business to operate. That is why insurance is one of the biggest expenses for all trucking companies.
However, it can absolutely pay to find out whether or not your company is paying more than is necessary when it comes to your insurance bill. You should periodically evaluate your fleet’s insurance policy – at least once per year – and see what other options might be out there for you.
If cash is especially tight, you may want to consider raising your deductible so that you can pay a lower monthly premium. Of course, you will need to balance the advantage of a lower premium with the risk of any future insurance claims.
Beyond that, regularly checking your company’s credit score could help you unlock better insurance policies at a lower price than you previously thought you were capable of getting.
Cut unnecessary expenses
One final way that you can improve the cash flow of your trucking business is to cut unnecessary expenses. COVID-19 has forced us all to make changes in our personal and professional lives and cutting expenses that you like but do not need could help you. Take a critical look at fixed costs such as office space, payroll, equipment agreements and service providers.
You may be able to find cheaper options out there that could help you improve your cash flow from month to month.
