Last Updated on October 11, 2022
Most small business owners are acutely aware of the challenges associated with expanding their businesses. Trucking companies are no exception. It isn’t easy to establish and maintain a trucking business. It takes hard work, business knowledge and quick thinking to succeed.
While not all business owners will be successful, those who succeed take the time to examine their businesses and do the work to make it profitable. Maximizing cash flow begins with a few simple steps to identify where major changes need to be made.
Some critical tips for owners of a trucking business on improving cash flow are listed below. Generally speaking, starting with the basics is the best way to increase profits. Following some of the basic steps listed below can fast-track any business owner towards a wider profit margin.
Keep Your Finances Organized
Keeping finances in order is arguably the most crucial step towards increasing profitability. Many business owners are shocked at some of the trends in spending and expenditures that only become apparent following an overhaul of how they organize their business’ financial information.
Trucking company owners should consider taking advantage of existing technology to bring their financial organization up to snuff. Modern, profitable business owners have moved away from pen-and-paper ledgers and now operate exclusively in the digital space.
There are several affordable, feature-rich software options for business owners. Using accounting software to manage finances simplifies the organization process and opens up new possibilities for analysis. Business owners who use software solutions have access to computerized tools to detect their spending and income trends.
While going digital is the number-one way to stay organized these days, it is essential to recognize that organization is a commitment. Business owners can’t just do one round of organization and call it quits. It takes overtime and hard work to keep a business organized.
Organization does become easier over time, however. Business owners can look forward to increasing returns on the effort they put into organizing their business. These returns come in the form of increased awareness of cash flow, increased understanding of expenses and easy-to-identify areas of inefficiency.
Find Inefficiencies in Your Business Expenses
Hidden inefficiencies cost serious money. According to some reports, 20 to 30 percent of a business’s revenue is potentially lost to inefficient operation. Trucking and transportation companies are especially vulnerable; inefficiency in these industries can compound as delays and costs increase.
For all businesses, utilizing digital technologies is one of the best ways to diagnose potential areas of inefficiency. However, there has not yet been a computer tool invented that can identify and fix all areas where a business is running below optimal efficiency. Owners and managers must use their experience to analyze and identify areas for change.
When it comes to small businesses, there is usually only a tiny handful of people, or maybe only one person, who understands the business well enough to truly identify areas of inefficiency. Business owners need to find time to take a step back and evaluate their business as a whole.
Consider starting with the areas of most significant expense. Following the money can produce quick, tangible results. Business owners need to ask tough questions. Is this employee or service necessary? Is the business outsourcing work that can be done cheaper in-house? Are there new technologies that can eliminate more costly methods of getting a job done?
Business owners shouldn’t be afraid to learn more about their own business. Awareness of inefficiencies may seem overwhelming or daunting. Identifying inefficiency usually means tough choices need to be made by the owner. However, the tangible returns are noticeable; identifying inefficiency is one of the best ways to raise a business’s bottom line rapidly.
Do Your Due Diligence on Your Customers
Customer due diligence, or the process of vetting new customers, is essential for many businesses. It is critical for customers that a business owner may interact with long-term. While it is not always possible to perform due diligence checks on every customer, deciding which checks to make can be determined by examining the customer’s risk profile.
For example, suppose another business contracts a trucking company to handle transportation services. In that case, the trucking company is taking on a certain amount of risk. The amount of risk and how it can impact the trucking company is referred to as the customer’s risk profile.
A risk profile is something that a business should determine before providing services to a customer. When conducting due diligence, business owners should already know how much risk they are willing to take on in a new business relationship. If a customer has a history of unpaid bills, poor credit or other exclusionary factors, it may be too risky to take their business.
Due diligence doesn’t end when beginning a new customer relationship. Business owners should maintain detailed customer records that the business can use to determine which customers are problematic. Every business owner must take time to determine whether specific customers are an asset or a liability to their profit margin.
Follow Up on Your Invoices
Most of the time, when a customer misses a payment without notice, it is an honest mistake. All too often, invoices get lost in the back-and-forth of business relationships. However, an invoice left on the back-burner by the customer can have major implications for any business.
Following up on invoices politely and professionally is one of the easiest things business owners can do to shore up their profit margins. Most customers will pay their invoices after receiving only one reminder. Giving a customer the benefit of the doubt can strengthen a business relationship.
As mentioned above, using digital technologies is one of the easiest ways to manage the trail of business paperwork, and invoices are no exception. Software solutions even allow for reminders to be automatically sent as the due date of the invoice approaches or after the invoice is overdue.
Successful invoice management is one of the best ways to ensure that services billed turn into actual profit. This is especially true for businesses such as trucking companies, which typically deliver many complex invoices to various customers. It is not always possible to stick to a 30-day payment term or another fixed amount, increasing the necessity of excellent invoice management.
Factor Your Invoices
Factoring an invoice can be an incredibly useful tool to improve cash flow for trucking companies that invoice in high volumes. Factoring an invoice describes the process of selling a customer’s debt to another business in return for a cash advance.
Factoring invoices can bring stability to a business’s cash flow. Essentially, a factoring company pays a business owner for the right to collect the debt owed to their business. The business owner gets cash quickly, and the factoring company is free to collect the debt owed by the customer.
There are some downsides to factoring invoices. Chief among which is the inability to collect the full amount owed. Factoring companies make their money by collecting on the invoices they have purchased for the same amount they were originally worth. This means that they always pay slightly less than the actual value of the invoices.
Taking a hit on the overall amount of income from the invoices can be beneficial. After all, an invoice isn’t worth much on its own, and many outstanding invoices can seriously bog down a business. Money infused from a reputable factoring company can help smooth out cash flow.
Grey was previously the Director of Marketing for altLINE by The Southern Bank. With 10 years’ experience in digital marketing, content creation and small business operations, he helped businesses find the information they needed to make informed decisions about invoice factoring and A/R financing.