Trucking Companies and Cash Flow: What are the Options?

Though often overlooked, the trucking industry is vitally important to the health of the US economy. Think about it: without truck drivers delivering goods, interstate commerce would grind to a screeching, tire-burning halt.

Unique Challenges

Despite the importance of trucking companies, the way the system is structured often leaves them in a shaky financial position. Truck companies submit invoices for services rendered, and then often wait 30-90 days for payment on the accounts receivables.

For a bigger company with large cash reserves, waiting to be paid would not be a problem. But for small to mid-size companies operating on a tight budget, it might not be an option. Expenses such as payroll and gas add up in the time between payment, and not paying your drivers is never a good business practice. Add to that rising fuel costs, delays due to traffic congestion, driver shortages and new regulations, and it is a recipe for financial hardship.

Therefore, trucking companies often have to turn to outside financing. The following are some options for trucking companies to consider:

Asset-Based Lending

Also known as factoring, this options refers to the process by which businesses sell their accounts receivables to a factoring company.  Approval for factoring is based on the creditworthiness of the trucking company’s customers.

At the time of the sale, the client gets 80-90% of the cash back immediately from the invoices. The remainder of the balance comes after customer repayment, less a percentage fee that typically ranges from 1-5%.

This option is best for B2B companies that cannot afford to wait for payment, and the cost is usually 4-5% monthly with an effective annual interest rate typically between 18-30%.

Bank Loans

Though hard to come by, bank loans are often the cheapest form of financing. The loan process involves an application and review of the company’s creditworthiness and financial history. Small companies especially tend to be turned down for loans, although exceptions do exist.

After approval, fund disbursement usually takes about 30-90 days to reach a trucking company’s bank account. This form of funding is best for trucking outfits with a great credit history and don’t need the money immediately.

Cash-Advances

Cash advances take place when a company receives an advance sum from a lender. The company pays the lender back with percentages of their monthly card receipts until the loan (plus a predetermined rate) is repaid. There are legal limits to the rates, and they cannot be changed retroactively. The benefit to cash advances is immediate cash- it is the fastest method for obtaining cash without going to a loan shark.

This financing method is best for trucking companies who need immediate cash for a short amount of time and have limited financing options. The cost is usually 20% and up.

Lease-Back

A trucking company may choose to sell property, plant, and/or equipment, and simultaneously leases it back for cash.

It is best for trucking companies with valuable plant or equipment assets that are underutilized, and the cost is monthly lease payments plus the depreciation and tax burdens of equipment.

Choices, Choices

Every trucking company is unique, and it is up to them to find funding solutions that meet their individual needs. Being informed on all the options is the first step toward finding a suitable cash flow solution.

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