May 13, 2021

Transportation Companies and Cash Flow: What Are the Choices?

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

Unique Challenges

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

For a bigger organization with large cash reserves, waiting around to be paid would not be an issue. But for small to mid-size companies operating on a tight budget, it might not be a choice. Expenses such as payroll and fuel add up in the time between payment, and not paying your drivers is definitely never a good business practice. Add to that rising fuel costs, delays due to traffic congestion, driver disadvantages and new regulations, and it is a recipe for financial hardship.
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Therefore , trucking companies often have to turn to outside financing. The following are some options for trucking companies to consider:

Asset-Based Financing

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

At the time of the sale, the client gets 80-90% of the cash back immediately from the invoices. The remainder of the balance uses customer repayment, less a percentage charge that typically ranges from 1-5%.

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

Bank Loans

Though difficult to find, bank loans are often the cheapest form of financing. The loan process involves a software 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 type of funding is best for trucking clothes with a great credit history and don’t require the money immediately.

Cash-Advances

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

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

Lease-Back

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

It is best for trucking companies along with valuable plant or equipment assets that are underutilized, and the cost is month-to-month 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 financing solutions that meet their individual needs. Being informed on all of the options is the first step towards finding a suitable cash flow solution.

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