Cash flow is the fuel that powers your trucking company’s financial engine.
By Timothy Brady, truckersu.com/ 

Not having a solid cash flow management system in place would be like attempting to run your trucks with less fuel than needed to complete a load. In both cases, you will end up short of your destination.

Here is a list of areas to which you need to pay attention:

1. Know where your profit begins. The worst mistake owners of newly-formed trucking companies make is  allowing others to determine their hauling rates. Allowing your competition or your customers to tell you what you should be charging is the first step to business failure. Don’t let someone else set your hauling rates. And the only way to set profitable rates is in knowing your break-even points.

2. Understand your customers. You must know the risk they represent to your revenue-producing capacity. What’s their credit rating? How’s their paying history? What are their projections for growth? What are their weaknesses? Are there problems on the horizon for this company or their industry? Labor troubles, foreign competition, recalls, product or patent lawsuits? In other words, know anything that could interrupt your customer’s ability to provide you with loads, or be able to pay their hauling bills in a timely manner.

3. Don’t let a single customer represent any more than 20% to 25% of your total revenue or accounts receivable. Shipping customers are the core of your business, so focus on continually farming for new business. This is accomplished by constantly developing relationships with companies and individuals who can provide you with new hauling opportunities. Growing your core business is your objective.

4. Give credit only where credit is due. 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. 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, and the more accounts which fit this description, the bigger the crisis. The bottom line is just like a banker; if you’re going to issue credit, make sure your customers have the ability to pay and pay in a timely manner.

Keep in mind, every start-up company and any company attempting to grow will experience a cash flow deficit. In your cash flow management and your day-to-day strategic plans, you must have an alternative on hand. This could be a factoring company, an accounts receivable management company, working with you so you have the necessary cash available to run your operation; and not be at a standstill, waiting for your account receivables to be paid.

You work hard for your money; be sure you work with someone who has your best interests in mind, and who will work with you every day to achieve your financial goals.

A word of caution: Select your factoring company carefully. There are some which have one goal: get as much money as possible out of your pocket within fourteen months (the average length of time most start-up trucking companies last). Many of these companies will legally tie you so there is no escape until you’ve failed, so read and thoroughly understand your contract. Be sure you’re aware of your obligations, when and how you can cancel your agreement, and what it will cost you. You need an organization which becomes your backbone, not one that will break your financial back.

Remember, cash flow is king when it comes to your business’s success. Don’t short-change yourself. Be prepared by knowing how you’ll have the cash to operate your company. Do this before you discover you’ve underestimated your cash needs because a customer hasn’t paid his hauling invoice. Always have a means to keep your cash tank full so you’ll make it to your financial destination.

Good loads and good roads, everyone.

Timothy Brady