Hauling retail goods and transporting products, materials and produce are the top clients served by the trucking industry. However, with the halt in major productions and services, due to the recent pandemic outbreak, the trucking and logistics industry have experienced quite a downturn in 2020.
Despite being one of the most exciting and fastest growing industries in the world, it is still one of the most capital intensive and diverse markets, with large and small companies working simultaneously in the industry. It is one of the high-volume businesses but with low profits and gross margins. With changes in tariff, duties and fuel prices, financial surprises are quite common and present regular challenges to the companies in these businesses.
Among the top financial challenges in the trucking industry are as follows:
Cash Flow Management
One of the most common financial surprises that affect the trucking industry is cash flow management. Unlike other businesses that enjoy a regular flow of money coming in, trucking businesses do not work that way. Most clients pay after 45 days or up to 60 days after a product or service is delivered. If your customers are slow to pay their invoices, without a business being fully aware of it, it would present quite a dilemma in funding the day-to-day activities of the company.
Lost shipments, damaged goods, claims and delays can also cost money from the business. Unless a business owner is aggressive with its account receivables and collection processes, financial surprises are bound to happen. Although maintaining a positive relationship with clients is essential, getting paid is important for the business too. You might end up sleeping inside a sleeper semi truck unless you learn to have full control and understanding of your cash flow and finances.
Sustaining a trucking and shipping business is quite expensive. Most of the small players in the industry are thinly capitalized. Their fleets may be moving around making money all over the United States, but they are spending money as well in the process. The cost of maintenance, salaries for drivers, tariffs, even theft, common in the most dangerous areas for truck driving in the United States greatly affects the finances of these companies. There is also a high turnover in truck drivers, causing some of your vehicles to be stagnant in your warehouse, instead of delivering goods and generating income for your business.
Trucking company owners and operators should be able to work the position of their business to be able to afford traditional banking financing to be able to improve the profitability of the business, buy more new or used trailers as well as generate more clients for the business. Putting the company in a reputable and stable status makes it qualified for financial help for institutions that can help a business thrive even in a cynical market or even a pandemic.
Banks and other institutions are generous in providing financial assistance for stable trucking businesses. However, due to lack of cash flow management, or other business issues, trucking companies can go into bad debt.
Most sole proprietors are thinly capitalized and a damage shipment or can suddenly bring the business to bankruptcy. If trucking owners and operators do not recognize the potential risks and the preventive measures that they should be practicing to limit their exposure to bad debt, they are bound to be out of business.
Trucking companies should promote aggressive collection efforts for outstanding balances. Considering security deposits, getting insurance and having extended credits from suppliers can help these businesses stay away from a challenging financial position.
Reporting and Record Keeping
Another challenge that can bring financial surprises to a business is the lack of property reporting and recording. In large trucking businesses working with several small owner operators, reporting and recording can be quite a challenge most especially without a proper tracking system.
Check and balance should also be carefully practiced in monitoring deliveries, invoices and other financial documents that affect a business. It pays to have a second eye that can double check to ensure that everything is in order.
To stay efficient and to avoid any surprises that may affect the business, it would be ideal to create standard procedures and processes to be able to provide accurate, timely and easy to access information regarding their business and shipments. An efficient recording and reporting system makes it also easier to create tax and state reports that a business is required to regularly submit.
There are plenty of opportunities in the transportation industry. Even with the challenges, proper management, monitoring and discipline can make it easier for businesses to avoid financial surprises that can be detrimental for the business. Truck owners and operators should take an effort to effectively manage these areas in the business to be able to improve and stay on top of their game. Staying consistent keeps a trucking company ahead of the game and stronger.
Joie is the passionate writer and blogger of UsedVending.com. She enjoys writing and works at an amazing pace. Blessed with two adorable boys, she dreams of creating a successful career online. She also loves to write about parenting, home and family life, technology and gaming, as well as beauty and health.