These days there’s lots of bad economic news and most of it affects you in some way, but nearly all of it is beyond your control. Of course we all understand that the trucking industry goes through peaks and valleys due to the seasonal and sometimes volatile nature of the business.
Whadyaygonnado? The answer is to grab control of whatever you can and hold on until the economic earthquake stops shaking.
The “experts” which usually turns out to be some corporate analyst from an investment banking firm will tell you to “diversify your portfolio” and have a “financial strategy” which may make sense to larger carriers with hundreds of trucks and a line of credit at a bank. Then again, maybe not. What we need is a straight talking, no-nonsense, practical plan.
There are three basic earthquakes that can break down a truck business in a matter of months:
• Increased Bad Debt
• Rising Interest Costs
• Lack of Available Credit
As bad as these 3 are, they are also the ones you can control just KNOWING what to look for instead of standing in the middle of the road and getting t-boned.
Increased Bad Debt: The transportation industry has traditionally enjoyed a low rate of bad debt, however, given the current economic downturn that could change overnight. Slow-paying customers can quickly turn into no-paying customers. If you let customers slide further and further behind, you may end up the last in line and holding the bad debt bag.
- Always credit check a customer’s credit worthiness BEFORE you accept a load
- Always manage and monitor your accounts receivable every day to collect on invoices
- Always get non-recourse that protects you if your customer seeks bankruptcy protection
Rising Interest Costs: If you carry debt you may find steadily increasing costs to manage lines of credit at conventional banks. The very people who created the toxic credit crisis are the same ones who are raising rates and lowering credit lines, squeezing out the trucking industry from financial resources necessary for demanding operations and growth.
- Change your financial partner to a company who offers you a low fixed rate
- Use a Receivable Finance Facility (factor) that can grow capital as your credit rating improves
- Steer away from companies with volume or minimum requirements that cost you monthly
Lack of Available Credit: The traditional banks routinely deny anyone credit with less than a two year track record of stellar business activity. If you have shaky credit, short-time credit or no credit history because you’re new in business, you don’t have a chance there, but there are alternatives.
- Find a factoring company that also accepts new truck companies with no credit rating
- Look for the lowest rates, fastest turnaround of working capital, and the best collection service
- Try factoring which is simply selling your unpaid invoices that deliver cash and reduce expense
There isn’t anything you can do about the price of fuel or weak demand from the consumer sector. So concentrate on the things you can control such as choosing a financial expert in TRANSPORTATION, not banking, that can shake-proof your trucking business. Once you get control of your cash flow, expenses decline, bills stop piling up and instead of survival-mode you will find you can think about the future.
A transportation industry expert, John Downing is the Vice President at Freight Capital who specializes in financial solutions for the trucking business.
