Cashflow management is a vital part of your trucking business. Without proper management of your funds, you could find yourself in a tricky situation, unable to pay vendors or credit cards, unable to make repairs or handle situations that could impede your growth. The good news is that there are ways you can improve your cashflow and keep your business booming. Explore the ways your trucking operation can succeed with the following cashflow tips.
What Is Cashflow Management?
Cashflow is the gross amount of money moving in and out of a business. Understanding your cashflow helps you predict how much money your business has coming in and how much money you may need to cover your expenses. By understanding the inflows and outflows of capital in your business, you are in a better position to plan for your growth.
Importance of Cashflow Management
U.S. Bank performed a study that showed 82% of businesses fail due to poor cashflow management. If your trucking company’s expenses exceed your revenues, you will have a cash crunch. This problem can put your business at risk of insolvency and/or banrkuptcy.
Performing cashflow management can help you stay ahead of financial problems that may arise and help you plan so that your bills are paid on time, even if your clients don’t pay you on time.
Efficiency Is Key To Profitability
Your trucking business makes money by optimizing efficiency. After all, if your trucks spend days idling and wasting fuel, you couldn’t possibly be profitable. Instead, make sure that you’re maximizing your equipment utilization to ensure that you’re generating the most revenues possible of your fixed expenses .Take a look at any other inefficiencies you may have in your business as they could be costing you in the long run. An inefficient operation strategy can cost a company up to 30% increase in expenses.
5 Tips to Improve Cashflow Management
Ensuring profitability is vital in order to keep your trucking business alive. If you’re ready to kick your business into high gear and improve your cashflow management, consider the following five tips.
Keep Your Finances Well Organized
Owning your own business requires more than just driving a truck. You’re responsible for all the finances for your operation, especially if you’re a sole proprietor. By keeping your finances organized, you’ll be able to have a better picture of the funds coming in and out of your business and provide you with a smooth process to make the best financial decisions. So, if you’re still waiting forever to log receipts, or if you’re still using an old paper ledger, it’s time to get organized.
There are plenty of tools out there that help business owners with their accounting needs. They help identify spending and income trends so you can make well-informed decisions regarding the management of your business.
Find Inefficiencies in Your Operations
As we mentioned above, efficiency is the key to profitability. To find inefficiencies, analyze all of your expenses. Ask yourself if all the expenses are necessary and if there are cheaper solutions that can provide the same results.
Understanding your business expenses can help you become more efficient, operationally and financially.
Consider Invoice Factoring
If chasing your clients for payments takes up too many resources or if you just don’t have the time to stay on top of the high volume of invoices, consider utilizing an invoice factoring service. This is a great way to take the stress off your hands while keeping cash flowing through your business without racking up any debt.
Factoring works by having a factoring company pay you up to 98% of your invoice up front while they wait to collect from your customer. Once the invoice is paid, they pay you the remaining balance minus their fees.
Properly Vet New Customers
Evaluate new customers, just like you would a mechanic that you are trusting with your truck. Knowing who you’re getting into business with is critical. The goal is to have a long-term relationship with your potential customers so do your research at the onset to make sure you aren’t wasting your time and money.
Unfortunately, some customers don’t pay their bills on time, or at even all. They could have poor credit, excessive debt, cashflow issues of their own, or even poor management. You should consider conducting credit searches before going into business with any new customers. Look for factoring companies that offer broker checks to avoid any potential losses.
Follow Up on Invoices
Oftentimes, businesses are too busy running day-to-day operations to remember to follow up with clients about paying past-due invoices. While mistakes happen, invoices can sometimes get lost in the shuffle. If you aren’t following up on your open invoices, you’re leaving cash on the table. This can have major consequences for your cashflow management.
Create a follow up plan that helps you professionally collect on your invoices from your clients in a timely manner. This not only helps keep cashflow running smoothly, but it’s a great way to check in with your customers and strengthen your relationships. If you are working with a factoring company, they will take care of that for you.
Solving Cashflow Problems
If your trucking company has cashflow problems, start with a cashflow analysis to determine the root cause. There are accounting programs, factoring platforms, and other tools that are available to help you improve cashflow and keep your business running smoothly.
Cashflow is also vital to help your business grow. If you’re going through an expansion, understanding the cashflow of your current operations can help you make informed decisions before taking on any debt for financing.
Cashflow is the money that moves in and out of your trucking company. If you have more money coming in than going out, your trucking business has a positive cashflow.
A negative cashflow means that you are spending more than you are making. This could mean your expenses are too high for your revenues. This could also be a symptom of expenses needing to be paid right away and revenues coming in 30-60-90 days because your clients expect extended payment terms.
A positive cashflow means your company is bringing in more money than its spending. This means your expenses are appropriate given your revenues and your profit margins are healthy. This could also mean that you are managing your cashflows effectively, either by demanding payment terms, taking advantage of ‘quick pay’ options, or factoring your invoices for immediate cashflow.
There are only three ways to improve the cashflow of a company. The first is to increase revenues in order to maximize inflows. The second is to control expense in order to decrease outflows. The third is to control the timing of the inflows and outflows. You can slow down outflows by negotiating terms with your vendors and supplies and speed up inflows by factoring your invoices with a reliable factoring partner.