The demand for trucking has reached record levels in the past several years. In fact, 2018 saw record-setting levels of freight-hauling demand and driver pay just as tonnage levels reached a 20-year high. However, just because business is good does not make it any less of a challenge. Efficiencies in trucking are critical in keeping the business profitable and the process is very much determined by the fleet’s payment process and availability of fleet cash flow.
Efficiencies in Payment Boost Fleet Cash Flow
Partnerships with companies like EFS have become increasingly valuable as fleet management teams work to streamline the payment process so that resources including fleet cash flow are where they need to be when they need to be there. And along with robust fleet card solutions, fleet cash flow can be better directed as well. Fleet cards are no longer just a piece of plastic and they can offer more than just payment. The right fleet card can deliver meaningful data and information to help make decisions faster and smarter, streamlining payment in ways that actually pay back. For example, EFS solutions help mid-sized to large fleets better manage and control their fuel purchases. Real-time fuel purchasing data offers insights into volume performance that not only save money at the pump but also provide a digital roadmap to even more efficiencies and savings in the long term. The positive outcome of using a fleet card for fuel also enables immediate access to fleet cash flow in other areas.
Customer Payment Slows the Process
Streamlining the payment process within the fleet makes sense but most fleets do not have control over their customers. Payment on delivery can take up to 90 days in some cases, which means efficiencies set on the front end are only slowing on the back end, and that is where fleet cash flow becomes a burden. Not all small to medium-sized over-the-road trucking companies have a surplus to accommodate the strain of a delayed remittance process. Fleets can sometimes be devastated by unexpected delays, while overall, fleets are simply responding to the immediate needs of the operation without having a strategy in place to address fleet cash flow issues. A proactive plan can help to avoid the setback of cash flow deficiencies.
Cash Flow Strategies for Rainy Days
- Have a setback reserve in which you place a specific percentage of all incoming revenue aside to cover slow times, repairs, or spikes in fuel costs.
- Have a capitalization plan in place—set aside and save profits until you’ve reached a balance equal to 18 months of your fixed expenses.
- Have a draw loan available through your bank or financial institution specifically designated to cover times when accounts receivable aren’t keeping pace with accounts payable.
- Contract with a factoring company to either purchase your shipping invoices through a non-recourse contract or provide upfront cash on shipping invoices while in a recourse contract, so you receive your revenue immediately upon the delivery of each load.
Freight factoring has become a reliable option for many fleets across the country. Factoring company Fleet One is a leader in the industry because they are credible and experienced in trucking. They know trucking just as well as they know finance, and are quickly becoming an essential part of any strategy to build fleet cash flow.
4 Ways Factoring Can Build Fleet Cash Flow
1. Finance Receivables
The obvious advantage of any factoring company is in their name. Trucking companies most often partner with factoring companies to finance the money already coming in. Factoring beats bank financing because it is not a loan. Factoring is a way to get the money that the fleet is already generating without the 30- to 90-day delay. Factoring offers an advance of the invoice balance minus a fee for the transaction. Factoring financing can provide immediate resources and the ability to build fleet cash flow over the 90 days that the customer would generally take for payment.
2. Consolidate Expenses
Factoring partners can encourage a look at the bigger picture to see where time and money might be lost. Just as EFS can help to streamline the payment process, it can also help with efficiencies in other areas. By reviewing operations overall, fleets are able to see where help is needed. For example, fleets can benefit from factoring company help with accounts receivable. Most factoring companies will handle collections and receivable responsibilities, which allows the fleet to focus on their strengths in getting the jobs done.
3. Check Credit Information
An experienced factoring company will make sure that your customers are financially credible. Your factoring partner should consistently check your customer credit ratings to ensure that payment is consistent and steady. It is just as important to their business as it is to your fleet to make sure customer alliances are sound. Additionally, it is just as important for fleets to be financially sound as it is their customers, so regularly checking your own company’s credit rating should be part of a strategy to build fleet cash flow.
4. Fuel Cards and Fuel Card Discounts
As mentioned previously, a robust fuel card solution can streamline payment and boost fleet cash flow in areas where you may not expect it. Not all factoring companies offer a fuel card, so it is important to find one that does. Fleet One Factoring will provide recourse and non-recourse factoring solutions along with a fleet card and fleet card discounts. With a Fleet One EDGE card, you have access to the largest fuel discount network available, with average savings of 12 cents per gallon*.
- Largest nationwide fuel discount network at more than 3,600 sites
- No fuel transaction fees in the Fleet One EDGE network**
- Universal acceptance at more than 8,000 truck stops nationwide
- Free fuel card funding with Fleet One Factoring
Clearly, developing a strategy for keeping fleet cash flow at a level that will accommodate the day to day as well as emergencies is something to consider before it is too late. But, that said, if your fleet factoring partnership is strong, they’ll have your back in any emergency that comes your way.