Looking for ways to boost the bottom line is a continuous effort by small business transportation owners. According to findings by the American Trucking Association, higher costs will take its toll on profit margins for many carriers. The bottom line on expectations of a vibrant bottom line: a low GDP could lead to stagnant growth for trucking companies and the industry as a whole.
The challenges seem great with a capacity crunch due to fewer trucks in the market than existed before the Great Recession. Until the industry can see consistent levels of growth, margins will remain under pressure. The costs of fuel, equipment changes, and driver shortage and recruitment may cause an increase in freight rates. Improvement on the bottom line will occur once capacity improves. Until then, however, trucking companies must find innovative ways to boost their bottom line.
One opportunity is to take advantage of factoring services, which can benefit trucking companies in many ways. Between meeting payroll, repairing trucks and paying for fuel, cash flow can squeeze margins for most companies. Freight factoring becomes an appealing option by turning unpaid invoices into instant cash.
Factoring is utilized by businesses in a wide variety of industries as a quick cash flow solution. Working capital becomes available within 48 hours instead of the 30, 60 or 90 days it takes to receive customer payment for invoices.
Typically, factoring invoices allows transportation companies to take advantage of flexibility regarding customers. They can choose which customers are better suited for the service, rather than factoring all customers at the same time. If a customer always pays quickly, factoring their invoice does not make sense. However, customers who wait as long as 90 days to pay are good candidates for invoice factoring services.
For this reason, some transportation companies might consider purposely adding slow payers to their customer base. Any business that has a significant volume of customer accounts will have a few that are not kind to the cash flow. The profit is there; it just takes these customers longer to pay their bill.
Too often, however, these can be the largest accounts that a transportation company has on the books. Rather than passing up a large order with a potentially slow paying customer, the company can sign the account and use factoring to access the money when needed. The advance can help to increase sales volume even though the customer does not pay right away.
Here are additional ways that factoring can boost the bottom line for transportation companies.
An unforeseen truck repair, meeting payroll or simply paying basic operational expenses can devastate the cash flow account. Factoring transportation invoices can help to eliminate that problem. The need to wait for payments on invoices is over since companies can access the cash much faster.
Cash remains king for the transportation company that needs to improve their profit margins. Often, this requires making investments to expand services and routes for customers expecting on-time deliveries. Accessing cash without delays allows transportation companies to meet these demands, which leads to business growth.
Part of growing the bottom line requires increasing the customer base to increase business revenues. However, it is difficult to grow a business without working capital. Having fast access to cash from invoices empowers companies to make business decisions when opportunities arise. They do not have to wait and hope for the best – or next – opportunity when factoring accounts receivables. Money is available when it is needed.
Another way that factoring boost the bottom line is with improved back office efficiencies. Typically, a strong factoring company offers accounts receivable management services in addition to cash advances. These services can save time, money and overhead costs while improving efficiency in back office operations.
The responsibility for collecting on outstanding invoices is handled by the factoring company. This service is usually included in the factoring agreement that is signed at the beginning of the partnership. While the factoring company collects invoice payments and advances cash, the transportation company can focus on operating a successful business.
Generally, this will help to free up time to get more customers, which means more business growth. Not having to wait long periods or spend time collecting money can eliminate a lot of stress in running the business.
Not only does the factoring company provide quick cash to the transportation company, but they also can speed up customer payments. Because the factoring company assumes responsibility for payment collections, customers who took a long time to pay invoices might begin paying faster.
In many cases, the factoring company reports credit information to ratings agencies. This is often enough to encourage prompt payment from customers rather than extending the payment period.
A good thing about factoring is this type of financial product is not a loan. Transportation companies are receiving an advance on money that is already theirs. The only difference is they are not waiting and possibly missing out on opportunities.
Instead, they are taking advantage of a service to get their money sooner without incurring more debt. In fact, some of the money could be used to reduce or eliminate existing debt. While there are fees associated with taking advantage of this service, the costs of accessing funds sooner are much less than waiting.
By having faster access to money from invoices, transportation companies can meet their own expenses much sooner. This helps to improve their credit rating since vendors may also report payment behaviors to ratings agencies. The domino effect is an enhancement to the company’s reputation and a positive bank account.
Paying vendors early is also a possibility when their cash flow issue improves. Some vendors may offer early pay discounts, which can help transportation companies save on interest. Factoring invoices places cash in hand today so that transportation companies can benefit from lucrative discounts.
One of the good things about partnering with a factoring company is many will prescreen potential customers. This additional service assists the transportation company in avoiding bad debt deals with customers that will never pay – even after 90 days.
Not only does the factoring service let the transportation company know if a new account is a good risk, they will keep bas companies out of the mix. The bottom line improves when a transportation company loses less money on unpaid invoices.
In more ways than one, factoring accounts receivable is worth taking advantage of to overcome cash flow problems. This is a viable resource compared to other financial products aimed at giving transportation companies a chance to improve the bottom line. Once a factoring company that meets all of its needs is found, there are many ways to benefit from the relationship.
This is especially true when the factoring service understands the ebbs and flows of the transportation industry. Basically, transportation companies can take advantage of the experience and knowledge a factoring company offers. Services are tailored to those needs while helping to grow the business.
Although credit restrictions are easing on traditional financial products, factoring remains a practical solution. Getting cash immediately by factoring receivables gives transportation companies a head start to boosting their bottom line.