June 4, 2020

Trucking Companies and Cash Flow: What Are the Choices?

Though often overlooked, the trucking industry is vitally important to the health of the US economy.
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Think about it: without truck drivers delivering goods, interstate business would grind to a screeching, tire-burning halt.

Unique Challenges

Despite the importance of trucking companies, the way the system is structured often leaves them in a shaky budget. Truck companies submit invoices for services rendered, and then often wait around 30-90 days for payment around the accounts receivables.

For a bigger corporation with large cash reserves, waiting to be paid would not be a problem. But for small to mid-size businesses operating on a tight budget, it might not be an alternative. Expenses such as payroll and fuel add up in the time between payment, and not paying your drivers will be never a good business practice. Add to that rising fuel costs, gaps due to traffic congestion, driver shortages and new regulations, and it is the recipe for financial hardship.

Consequently , trucking companies often have to turn in order to outside financing. The following are some options for trucking companies to consider:

Asset-Based Lending

Also known as factoring, this options describes the process by which businesses sell their accounts receivables to a factoring company. Approval for factoring is based on the creditworthiness of the trucking company’s customers.

At the time of the sale, the client will get 80-90% of the cash back immediately from your invoices. The remainder of the balance comes after customer repayment, less a percentage fee that typically ranges from 1-5%.

This option is best for B2B companies that will cannot afford to wait for payment, and the cost is usually 4-5% month-to-month with an effective annual interest rate generally between 18-30%.

Bank Loans

Though difficult to find, bank loans are often the cheapest form of funding. The loan process involves a credit card applicatoin and review of the company’s creditworthiness and financial history. Small companies especially are usually turned down for loans, although conditions do exist.

After approval, fund disbursement usually takes about 30-90 days to achieve a trucking company’s bank account. This form of funding is best for trucking outfits with a great credit history and don’t require the money immediately.

Cash-Advances

Cash advances occur when a company receives an advance sum from a lender. The company pays the lender back with percentages of their monthly card receipts until the loan (plus a predetermined rate) can be repaid. There are legal limits towards the rates, and they cannot be changed retroactively. The benefit to cash advances is instant cash- it is the fastest method for obtaining cash without going to a loan shark.

This financing method is best for trucking companies who need immediate cash for any short amount of time and have limited financing options. The cost is usually 20% and up.

Lease-Back

A trucking company may choose to sell property, plant, and/or equipment, and simultaneously leases it back for money.

It is best for trucking companies along with valuable plant or equipment resources that are underutilized, and the cost is monthly lease payments plus the depreciation and tax burdens of equipment.

Options, Choices

Every trucking company is unique, and it is up to them to find funding solutions that meet their person needs. Being informed on all the options is the first step toward finding a suitable cash flow solution.

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