How to Prevent a Cash Crisis

How to Prevent a Cash Crisis

Alma Bailey 0 Comments

As freight volumes continue to defy the norm, it is important for trucking company owners to be prepared for anything. In an unpredictable market, cash flow is particularly subject to wild fluctuations. Every transportation business has them; times when incoming cash can't keep up with the demands of outgoing cash. That can be especially true during industry downturns or if your trucking business services seasonal customers where demand peaks and then dies off. Having a back-up plan for these challenging periods can prevent a cash flow low from turning into a cash flow crisis. Freight factoring provides a vital element of financial stability by creating positive cash flow through fast, reliable funding to active trucking companies.

Have a Backup Financial Plan

There is a misconception that just because you don't see an obstacle coming at your business, you can't plan for it. For example, while you might not always be able to predict the full impact of a sudden dip in market demand, you can have a back-pocket plan to provide cash flow in emergency situations. Any good business plan includes contingency planning. It's a "what if" thought process where you list the things that could go wrong in your trucking business and then create a plan for what you'll do when that happens. Part of that planning must include how you'll deal with cash flow demands and shortages.

If you haven't already performed your contingency planning for your business, it's time to meet with your accountant, business coach or mentor to talk it through, and create your plan.

When planning for the "what if" scenarios, be sure to have a clear plan on where you'll go for working capital. That can include solutions like:

How to Command Profitable Rates

With all this economic uncertainty, how do owners maintain a sustainable trucking company? The key is to provide good, reliable service, maintain access to working capital and be prepared for future opportunities.

Shippers have become wary of low-cost transportation service providers that intermittently lead to service failures. Delayed deliveries and damaged freight are costly failures that erode the shipper’s bottom line. By delivering consistently reliable service in specifically chosen lanes, successful carriers build customer loyalty and command profitable rates for their service. 

Factoring Line of Credit

To assure the continued delivery of quality service, you need reliable access to working capital. Without the needed cash on hand, your trucks will grind to a halt, eliminating your source of revenue. Further, it is vital to secure financing for future growth. As small and unprofitable trucking companies exit the market removing available capacity, they leave a gap that needs to be filled when volumes return. Now is the time to execute a financial strategy to fund operational expansion when future opportunities arise. A Factoring Line of Credit is a flexible and cost effective cash flow solution for medium, large and growing fleets.

A Factoring Line of Credit is a cross product combining the features of a commercial line of credit with the benefits of freight factoring. It provides the ability to access funds from your account and only pay fees on the amount drawn. Although this funding solution acts much the same as a commercial line, it is not a loan; it is a freight factoring product. Available funds are generated through the selling of accounts receivable invoices to build a cash reserve from which you are able to draw from. Qualification is easy for any trucking company with credit worthy customers. The greatest advantage of opting to use Factoring Line of Credit, is that it frees you from the restrictive covenants banks use to control your finances. You are only limited by the volume of invoices you generate. The more accounts receivable invoices you convert the more you feed your cash reserve increasing access to working capital. As business grows, so too does your ability to fund further expansion.

Being prepared is always the best defense against external forces such as a downturn in the industry. Develop a 12-month cash flow budget to get a clear picture of when you can expect cash flow to peak or come up short. Planning business expenditures and a backup plan based on these predictions puts you in the driver's seat.

Find out more about invoice factoring and how it can provide cash flow to see your trucking business through a transition.

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