In the trucking industry, cash flow deficits can be a recurring issue. While short-term loans might seem like a viable solution, the reality is they can cause larger problems further down the line.
What causes cash flow deficits?
Cash flow deficits occur when more money is leaving a trucking company compared to the amount of revenue coming in. Financial obligations such as payroll, fuel, tax liabilities, and general overhead expenses are constant, and cannot be delayed. At the same time, freight invoices are issued with staggered payment schedules of 30, 60, and 90 days. In theory, this sets up a constant stream of revenue to keep expenses covered. Such is not the case. These staggered payments create gaps in the cash flow, and when expenses exceed revenue, a cash flow deficit occurs.
Short-term loans don’t help cash flow deficits
When cash flow deficits occur, trucking companies might be tempted to take out short-term loans to smooth out revenue cycles. The truth is that short-term loans only act as a band-aid on a much larger issue. Loans provide capital, but they also impact credit ratings and place debt on the books. This means that revenue coming in not only has to cover regular expenses, but also has to repay the balance owed on the loan. If another cash flow deficit occurs down the line, the existing loan can only compound financial issues.
Eliminating cash flow deficits
Instead of loans, trucking companies use freight factoring to eliminate and reverse cash flow deficits. Freight factoring turns unpaid receivables into cash within 24 hours, effectively eliminating staggered payment schedules. The fast turnaround supercharges cash flow for trucking companies, giving them immediate access to capital. Additionally, freight factoring is debt-free, so trucking companies can preserve their credit ratings. The fast access to revenue from unpaid receivables gives trucking companies the ability to cover expenses and build up capital.
At Express Freight Finance, we offer comprehensive factoring services nationwide. If you want to pivot away from short-term loans, eliminate cash flow deficits, and boost capital reserves for your trucking company, contact the team at Express Freight Finance today.