January 27, 2020

Trucking Companies and Cash Flow: What Are the Options?

Although often overlooked, the trucking business is vitally important to the health of the US economy. Think about it: without pickup 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 organized often leaves them in a shaky budget. Truck companies submit invoices for services rendered, and then often wait 30-90 days for payment in the accounts receivables.

For a bigger company 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 an option. 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. Enhance that rising fuel costs, delays due to traffic congestion, driver shortages and new regulations, and it is a recipe for financial hardship.

Therefore , trucking companies often have to turn to outside financing. The following are some choices 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 organization. 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 in the invoices. The remainder of the balance uses 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 typically between 18-30%.

Bank Loans

Though difficult to find, bank loans are often the cheapest form of funding. The loan process involves an application and review of the company’s creditworthiness and financial history. Small companies especially are generally turned down for loans, although exclusions 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 clothes with a great credit history and don’t require the money immediately.

Cash-Advances

Cash advances take place when a company receives an progress 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) can be 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 obtaining cash without going to a loan shark.

This financing method is best for trucking companies who need immediate cash to get a short amount of time and have limited financing options.
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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 with valuable plant or equipment resources that are underutilized, and the cost is month-to-month lease payments plus the depreciation plus tax burdens of equipment.

Options, Choices

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

5 thoughts on “Trucking Companies and Cash Flow: What Are the Options?

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