As we continue the article from last week, we’ll cover three additional business risks small motor carriers face and the solutions to these perils. We’ll discuss when and how to issue credit to your customers, how to make sure you own the company-and it doesn’t own you-and finally, how to think like a banker so you’ll be bankable. 

• Give credit only where credit is due. Operations people tend to be quick on the issuing credit trigger, because their objective is to load the trucks and keep them rolling. Whenever you allow a shipper to pay on credit, you become a lender. If done with limits and controls, issuing credit can be an effective revenue enhancer. Done haphazardly, it can lead to a cash flow nightmare and you risk business failure. People in the commercial lending industry look at what is called Days Sales Outstanding (DSO). This is how many days from when a shipment was dispatched or delivered to when the hauling invoice is paid in full. If you receive final payment on a delivered shipment which exceeds 50 days from dispatch or 40 days from delivery, you have a problem. The more accounts which fit this description, the bigger the crisis. You must be like a banker; if you’re going to issue credit, make sure your shippers and brokers have the ability to pay and pay in a timely manner. 
• Do you own a company or does the company own you?  A large majority of small trucking company owners, particularly single truck owner/operators, earn less as company owners than they would as company drivers. The average owner/operator with his own authority today will either be driving as a lease driver or be in deep financial trouble within 14 months. The reason: lack of investment in the company. What these owners do is unknowingly steal the cash from their trucking operation for their personal uses. They’ve failed to include all their costs in determining their break-even point and hence into developing their hauling rates. Or, they don’t know their break-even point and are allowing others to determine their hauling rates.  Either way, these trucking company owners are taking out of their business more cash than their operation’s performance and conditions will allow. 
• Think like a banker. If you are going to establish a creditable relationship (pun intended) with a banker, you must approach your business from their point of view. Bankers don’t lend money without doing their homework. They’ll have articles from trucking industry publications and from banking resources like Journal of Commercial Lending or industry-specific studies from the Risk Management Association that will be in your file alongside your balance sheet, credit report, financial statement, profit & loss statement and your business plan. You need to acquire the same information so you’re up to speed on what’s going on in your industry. Do your homework, too.

Knowing your break-even point will help determine your daily and weekly cash flow needs. Knowing your DSO (Days Sales Outstanding) and your customers’ credit worthiness will help determine when to issue credit. Listening and researching how to improve your operation will increase efficiency, and investing in your company by leaving enough cash in the company’s coffers will make the worst of times your best of times. Becoming bankable will help you achieve self-capitalization, and self-capitalization leads to sustainable growth and success.

Good loads and good roads, everyone.

Timothy Brady
©2009