Top 5 Reasons Trucking Companies Require Business Finances
Money is the fuel that runs the entire business mechanism. Every single business, be it service-oriented or product-oriented, requires a constant cash flow to sustain in today’s highly competitive business environment. With the constant expansion of massive well-planned roads connecting cities, states and even nations, trucking businesses, today, are quite a profitable venture. However, like any other, a trucking business needs to cross multiple hurdles on its way. One of the biggest challenges trucking companies face is maintaining a stable cash flow. As the trucking business often assures high profitability and growth opportunity, many entrepreneurs are getting into the industry, steadily increasing the competition. Hence, trucking companies, these days, need to gain a competitive advantage over others. To position itself superior to others, a trucking company needs to be backed with a unique marketing strategy and conduct a captivating campaign, for which money is required in quite a bulk. Hence, substantial working capital is mandatory to keep the ball rolling. However, when it comes to business, cash flow is never the same throughout the year. Many times, a trucking company faces difficulty to operate uninterruptedly, due to certain inevitable economic, political or social circumstances. This often leads to a severe financial crunch. Small business loans or an alternative quick financing option like Merchant Cash Advance(MCA) immensely help a business survive through the bad phase. Though business finances can be risky, they offer the borrowers a huge array of benefits.
Primary Reasons A Trucking Business Might Need A Business Finance:
Drivers are the most valued asset of every trucking company. They are the ones who take the responsibility of safely carrying the shipments to their destinations. Therefore, it is very important to continuously add skilled drivers to the existing workforce, to ensure a more efficient delivery process. But, hiring experienced and skilled drivers is often expensive, as the company needs to pay for the drivers’ training, insurance, uniforms, additional equipment and other certification-associated fees. Business loans or other financing options enable the companies to pay these bills without creating a gap in the regular cash flow.
Unpaid invoices, many times, turn out to be the primary reason behind the cash flow gaps. In the case of transporting or trucking businesses, shipments are usually delivered on a credit of 60 to 90 days. This means the invoices of the shipment services are cleared 60 to 90 days after they are raised. Therefore, for small trucking companies with limited working capital, it becomes difficult to carry out regular business operations, till the payment is received after 2-3 months. In such a scenario, a business owner can either opt for a trucking business loan, which can offer funds to pay the daily operating expenses, or apply for invoice factoring, which will allow him to sell the unpaid invoices to invoice factoring companies, who will him pay around 70% to 85% up front of what the invoices are worth. After the lender receives full payment for the invoices, from the customers, the remaining 15% to 30% of the invoice amounts will be remitted to him and he will pay interest or fees for the service. Also, one can use invoice discounting, which is quite similar to invoice factoring. But in the case of invoice discounting, the lender will advance the borrower up to 95% of the invoice amount. After the clients pay their invoices, the borrower repays the lender, subtracting a fee or interest.
Research conducted by the American Transportation Research Institute states that companies with more fleets have a higher chance of getting a larger return of investment (ROI) compared to those with a lesser fleet. Adding more trucks to the existing fleet/fleets always turns out to be beneficial for a trucking company. This is because it allows the company to cater to more clients, increase profits and eventually expand its market base. However, a company requires substantial capital to keep on buying trucks in short intervals. Alternative business finances like MCA can help trucking business owners with money to make the purchases when needed.
The start-up costs of a trucking company are often exorbitant. Purchasing trucks, fuel, and paying for the office space and equipment can be expensive. Besides, other payables often keep piling up month after month, in the case of a start-up. In such a situation, trucking business finances for trucking companies help the entrepreneurs to acquire equipment, pay the monthly bills and ensure smooth operation.
The rapid advancement of technology is encouraging most businesses to adopt automated systems to ensure operational efficiency and get a competitive advantage. But, upgrading systems is quite expensive these days. Hence, it can be beneficial for a trucking company to consider a traditional business loan or an alternative financing option to be in tandem with the constantly-evolving industry.