Cash is the lifeblood of any business and no one knows that better than Jeremy Robison. As president of Tetra Capital, an independent company offering freight bill factoring services to trucking companies of all sizes, Robinson has dealt with a variety of trucking-related fiscal issues over his career, including equipment financing, equipment purchasing, lease operator programs, driver recruiting, plus payroll and equipment maintenance. In this guest column, he offers owner-operators advice on how to boost “working capital,” which is oftimes simply "cash" by another name.
Working capital is a measure of both a company's efficiency and its short-term financial health. Yet due to a trucker’s consistent need to purchase fuel, maintain equipment and make payroll, that “short-term” term fiscal health can sometimes become very precarious.
When you couple that to the not-so-consistent payments from your customers, it means you need to look for ways to increase available working capital.
Now, the best way for transportation companies to increase their working capital is to increase the amount of current assets (i.e. cash on hand) and/or decrease the amount of current liabilities (i.e. bills). Here are a few tips that any trucking firm, regardless of size, can use to accomplish both of those goals:
Have an easy and effective way to collect on your invoices. Make sure you have an invoicing process or system in place that is easy for you and your customers. Your invoices should be sent out in a timely manner and be clear to read with the payment terms clearly identified. You also need a process or system in place to remind your customers of past due invoices and for collections when the invoices go unpaid past the stated terms.
Look for ways to save on your expenses. Your overhead is the first place to look when examining ways to increase your working capital. If you can lower your fixed costs, you can likely tip the scales in a positive direction. Payroll is often one of the largest expenses for a transportation company and it would be wise to determine if payroll could be lowered. One way is to see if there are possibilities for outsourcing some functions such as accounts receivables/collections and marketing.
Another way to save on your expenses is to look for loyalty programs or other programs that will lower your current expenses. For example, are there fuel purchasing programs or maintenance service plans you can take advantage of to lower the cost of things you need on a regular basis?
Examine your accounts payable. Take a look at how you can stretch out making payments on expenses, so you hold on to your cash for longer. This could mean taking full advantage of payment terms or working with partners with payment terms that fall more in line with your cash flow cycle. It could also be beneficial to see if there are any early payment discounts offered to save you money.
See if freight bill factoring works for your operation. Factoring your freight bills allows you to eliminate the 30 to 60 days you have to wait for your customers to pay, giving you access to the funds you need to pay for things such as fuel, maintenance, and payroll. Factoring services allow you to use your existing untapped collateral (your invoices) for a nominal fee without assuming any debt.
Can you lease your equipment? You could sell your existing equipment to an equipment leasing company who will then lease it back to you for a lower monthly payment than you currently have. Additionally, an equipment leasing company can help you gain access to new equipment that could help lower your maintenance and fuel costs as well. Spending more time on the road with more effective equipment will put more money in your pocket as well as the advantage of having the latest technology and efficiency.
Partner with a professional and reliable freight broker. The options for freight brokers can seem endless, but not all are created equal. Some are just fly-by-night operations in someone’s basement, and others are professional and reliable. By taking a little time to ensure you are working with the latter, you can improve your working capital with the possibility of higher rates, better routes, less risk and more time on the road while putting more money in your pocket.
