The trucking business is lucrative but competitive. If you don’t do things right from the beginning you could end up failing fast. To be successful, you need to be an excellent business owner, not just an experienced trucker who can find the best routes.
3 Success Factors
Essentially, you have to do three things correctly to be a successful independent owner-operator.
First, you have to buy the right equipment without falling for an owner-operator financing sales pitch that does not work in your favor.
Second, you should have a solid client base. While it might be possible to get your customers from a load board, you still need to have a proactive, lead-generating strategy for the long haul.
Third, you have to place your bid to cover your expenses. It may be tempting to beat the competition by offering the lowest rates, but if you can’t earn more than you spend, your business will not last long.
Unfortunately, even if you get these three essential factors right, there is still one other thing that can trip you up: negative cash flow.
What is Negative Cash Flow?
As a self-employed trucker, you have an unusual problem not faced by fleets that have developed a comfortable financial cushion.
After invoicing a client for freight delivery, you may have to wait 30, 60, or even 90 days before you get paid. But you also need money immediately to cover your operating expenses.
Unless you have surplus cash you can draw on to close the gap or a business line of credit, your business can run into trouble. If more money is going out than coming in when you need it then you have a negative cash flow problem.
While your customers can defer payments from the credit you give them, you can’t delay payroll or get your fuel costs put on a tab. If you have an unexpected large expense—say a truck breaks down on the road, you will not have the money to buy parts and pay labor costs.
Although your business can look profitable on paper, the problem is one of timing. It’s not how much money you’re making but about how to pay your operating costs on time.
How Will You Cover Your Operating Expenses?
How do you meet day to day expenses as they arise when you have to wait to receive money?
The solution is to use a finance factoring service as a way for your fledgling trucking company to sustain its business capital.
Companies for truck factoring can help you with payments in the following capacities:
· Your office staff and drivers. It’s almost impossible to run your business without hiring good help. There is too much work to be done to do it all yourself.
· Your insurance. You can’t pay this after your clients have paid you. You have to pay your insurance premiums at the time they are due.
· Your fuel costs. Although you can purchase on credit, this will add to your costs and cut down on your profits.
· Your miscellaneous expenses like tags, registration, and advances to drivers on the road. Again, these have to be paid right away.
How Does Truck Factoring Work?
After you generate an invoice for a customer, a truck factoring company pays you cash for the amount you’re owed. You may receive the money on the same day or within a few days.
Essentially, you are getting an advance of 97% of the amount you invoice your clients. The financier may hold a reserve to cover any problems with collecting customer payments. However, full financing is now becoming more common.
Often, you will get the money electronically, deposited straight into your business checking account. Since the money is directly deposited, you can then pay your own operating expenses at once.
Finance factoring should not be confused with a loan or a line of credit. Since you are selling your freight invoices, you don’t need to fill out an application form, go through a credit approval background check, take on debt, or make periodic payments.
Additionally, finance factoring is not static. It grows as your business grows. So as you get more customers or deliver more freight to existing customers, your financing will automatically increase.
Finance factoring may be one of the most flexible forms of financing currently available to the trucking industry.
How Do You Qualify?
Qualification is fairly simple with only two primary requirements.
The first requirement is to establish that you are working with reputable freight brokers or reliable clients. This is a reasonable requirement because the finance company wants to ensure that they get paid.
The second requirement is that your trucking company should not have any tax issues. Again, if you run into trouble with tax liens on your property, then everybody suffers.
Is it Expensive?
Costs are affordable if your business is doing well. They can vary from 1.5 percent to 3.5 percent. Costs are calculated on the basis of customer or broker creditworthiness, invoice terms, and your volume of invoices.
Is it a Good Idea?
Truck factoring works for a company that has a steady business and is in good financial standing. This means the company should be well run with a good volume of reliable clients. The better your business, the lower factoring costs will be. By eliminating cash flow problems, you will be able to grow your business faster.