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How To Make Sure Your Trucking Business Is A Success

So, you’re thinking about starting a trucking business, but perhaps you aren’t sure how to truly succeed at it. A career as a trucker is both potentially lucrative and rewarding. But at the same time it is incredibly competitive. To be frank, many truckers try to break into the business every year and do not succeed, for whatever reason.

But don’t let that dissuade you. The key differentiating factor is that many can be a good trucker, but not everyone can be a good business owner. The fact of the matter is this: Knowing how to operate a successful trucking business is about more than being able to drive a truck or map out a route.

Today we will cover five essential steps to ensuring your trucking business is successful. First, you have to make sure you acquire the right equipment for the job.

The Right Equipment

Procuring the right equipment will be the most expensive decision you will have to make as you get your business going. What kind of trucking do you plan on doing? Do you want to go regional or national? Furthermore, what part of the country are you operating in? Will you be going over mountain passes and through hilly regions?

Once you have figured out the application, the next decision is whether to buy or lease the equipment. Buying is straightforward. Like any normal vehicle purchase you put a down payment and finance the rest. These are expensive machines, so rarely will one have the cash on hand.

Leasing the equipment is a bit more complicated, though in some cases you may end up with a lower payment. With a lease you pay a monthly fee for the use of the equipment. Other options are structured in such a way where you own the equipment once the last payment has been made. With leases, there are a dizzying array of options.

In the end, there is no final answer. It really depends on the specific situation you and your business is in. Just make sure you don’t wind up making the wrong choice.

Acquiring Customers

Most new truck operators get their shipping customers from a load board. And while load boards should definitely be part of your long term strategy, they certainly shouldn’t be the only component. Even so, they have many benefits.

Once you have settled on a good, quality load board to rely on, you can begin making sales calls and also building a customer list of your own. While building a customer list is hard work, there are advantages to it. Working with a set group of customers provides you with a level of consistency that’s hard to get when you are always working with new customers.

Bid Smart

While your bid must be low enough to be competitive, you’ve still got a profit to make. The only way you can be sure your bid will meet your needs is to know your expenses. Whether it be truck maintenance, repairs, payments fuel or overhead, you need to know the intimate details of your cost structure.

Once you have that information pinned down, you will know exactly what you need when the time comes to put in a bid. Always remember to bid low, but bid smart.

Run an Efficient Back Office

The size of your back office needs depends on the type of business you are running. Obviously, a small fleet will need a more expanded back office than a single owner-operator.

Think about your back office operations from a process and procedure standpoint. From utilizing technology to enhance your business operations to streamlining payments and contracts, how well your back office runs could make or break your business.

Keep the Cash Flowing

Cash flow problems are some of the toughest a trucker can deal with. Many shippers pay on a net-40 or net-60 payment cycle. When you have to wait two months to get paid, you can run into some serious cash flow problems.

There are a few ways to combat this, whether it be through freight factoring or using third-party finance companies, the fact is you need to get your bills paid when they are due.

Looking to start a trucking company? Whether you want to run a small fleet or hit the road as an owner-operator, keep these principles in mind!

Freight Factoring Is About More Than Cash Flow

Fleet managers and owner-operators who haven’t been looking into the benefits of freight factoring may be missing out.  New ways of leveraging this financial instrument to boost operational efficiency are emerging.

Freight factoring is loosely defined as money advanced on accounts receivables by a third party, usually for a fee. Because it’s harder for small or new trucking companies to get a line of credit from the bank, factoring gives them a fast and reliable way to maintain an operating cash flow. Without it, many would be unable to purchase freight bills.

The Growth of Factoring

Freight factoring mainly serves to speed up cash flow. Since many fleets pay for their accounts receivables on the day they complete the delivery, factoring allows them to get the cash they need to carry them through to the next load. Factoring takes the waiting out of the game.

Factoring has been playing a role in trucking for a long time, mainly due to the need for a continuous stream of operating cash flow. Over the past several years, freight factoring has grown substantially.

As freight levels rise, carriers are looking to buy more trucks and get them on the road. Some fleets are discovering that they can tap their cash flow to make large purchases and grow their businesses. For many fleets, it’s a new way to use factoring.

The Evolution of Factoring

Companies who once only provided factoring services are now starting to expand into other areas. Beyond basic recourse and non-recourse factoring, some are offering financial services to fleets, from load-matching to purchasing fuel and equipment.

Freight factoring firms have grown into full-service providers that offer their clients more than the standard cash flow management solution. Now they are providing business tools that can help streamline operational efficiency over the long haul.

The standard accounts receivables factoring has been enhanced by a multitude of other services. Together, the combination of factoring and financial services provides trucking clients with full one-stop shopping.

The Future of Factoring

As factoring providers continually branch into other areas of business, expect these services to explode across the trucking spectrum. Whether it’s for fuel discount services, invoicing and collection services, online credit-history checks, or back office support, soon factoring will be forgotten as the thing that got these operations started.

With clients being able to find loads and run free credit checks on brokers and shippers, better decisions can be made regarding what loads they haul. Fuel finder apps allow truck drivers to see the best fuel prices on their designated route. Many factoring apps can seamlessly integrate account management functions with freight planning, making operations faster and easier.

Even emergency road service is appearing as another area factoring has touched. One company is providing an emergency road service through 36,000 vendors across North America. There’s no subscription fees, though there are transactional charges. With the number of aging trucks on the road, factoring services are playing a much-needed role.

Win-Wins in Factoring

Technology is reshaping the game in almost every industry, and factoring is not immune. The technology supporting factoring is getting more and more advanced by the year. The next wave in factoring immersion is going to be in the area of paperwork.

Streamlining paperwork is on every fleet manager’s mind. Many factoring organizations are now looking to roll out load boards specifically for their customers. Becoming a full-service provider of business tools and financial services locks in long term relationships with important clients. It’s a win-win for fleet and factoring provider.

Freight factoring 15 years ago was only considered for companies that had cash flow issues. Today, it represents a normal operating option for fleets of all shapes and sizes. As the economy improves and more players enter the trucking scene, expect freight factoring providers to continue growing their business. After all, offering crucial solutions for fleets looking to enhance their business is beneficial for everybody.

How Freight Factoring Could Work for You?

We all know what freight is, but it’s when factoring is added that it gets a little complicated. The word “factor” is both a noun and a verb. In this sense the word should be taken at its definition as a noun, which is the business of purchasing and collecting accounts receivable or of advancing cash on the basis of accounts receivable.

Whether you’re a solo owner / operator or running a 50 truck fleet, the ability to control and optimize your cash flow could make or break your business. A freight factoring company will pay you a percentage and assume responsibility collecting on the invoice. There are alternatives to this method, but they’re less appealing.

Opening a floating line of credit is an option, but this carries potentially higher interest rates and comes with its own inherent risk. With freight factoring there’s no debt incurred; nor are there any monthly payments.

 

It’s also impossible to walk into a bank with an invoice and expect money to be advanced based on said invoice. To them it’s merely just a piece of paper. They feel the risk is too great to assume if the customer does not pay. This is where freight factoring fills the gap.

How It Works

The best option will always be to invoice the customer directly and wait for their payment, but many customers can be slow to pay on their invoices. For those that need cash right away, freight bill factoring provides an additional option.

Transportation factoring is quite simple. It involves nothing more than giving your unpaid freight bills to a third party for less than you’d receive if you were to bill the customer and wait. This gives you faster access to money you need to fund your day-to-day operations.

Here’s how it generally works, step-by-step:

  1. You book your load.
  2. You send the details about your customer, the load, and your rate to the factoring service.
  3. The factoring service gives you the green light if your customer is approved for load factoring.
  4. You complete transportation of the load.
  5. Once empty, you send the Bills of Lading and load-related documents to the factoring service.
  6. Within 24 hours the factoring service will advance you an approved amount, which is usually somewhere between 60 and 90 percent of the total billing.
  7. Once the customer has paid the factoring service, you receive the balance.

It should be disclosed that freight bill factoring isn’t free. As business owners, it’s up to us to determine what services are worth the cost, based on our circumstances.

Freight bill factoring costs generally float between the ranges of 1.5 and 5 percent of the line haul revenue. The factoring service is provided as a retail product, a sale, as opposed to a banking product, or a loan. The risk associated with accepting the invoice is born out in the nominal fee.

Types of Freight Factoring

Freight factoring is not created equal. There are generally two types:

  1. Recourse-based: If the customer fails to pay the invoice, the factoring service can come back to you for reimbursement.
  2. Non-recourse based: If the customer fails to pay the invoice, you still get paid.

While some options allow for a load-by-load factoring, others require that all future loads be factored through said option. Many factoring services provide you with the option to choose how the relationship develops, depending on the customer.

This allows you to also decide whether or not you want immediate payment or payment when the invoice is paid. There’s a convenience in using the factoring service as a de facto billing service.

Not every service is right for every business, but if the ideas of a high interest bank loans or negative cash flows are unappealing, freight factoring may present an acceptable alternative.

How Technology is changing the Face of Trucking?

The fleet of today is nothing like the fleet of yesterday, and the fleet of tomorrow will be even more unrecognizable. Technology is changing the face of transportation in ways that haven’t been easily predicted.

As electronic logging devices, cameras, GPS units, and computing devices of all sorts invade the cab, carriers and drivers have to adjust. No longer is “staying connected” a landline phone call away; today it’s the way we live in modern society.

Trucking Evolves

For decades the trucking industry languished in a low-tech environment. Efficient connectivity and interoperability was limited to primitive mobile communication systems. These devices simply inventoried assets, sent messages, and logged performance and maintenance information.

                                                                                                    

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Today’s technological revolution means that even with an aging workforce, approximately 70 percent of drivers now utilize personal devices that keep them in communication with their vehicle and the road. And with regulations always waxing and waning, independent operators and commercial and private fleets need to utilize these new technologies to stay in compliance.

More and more the requirements of the business demand applications such as electronic logbooks, driver workflow monitors, and performance and maintenance tracking. Meeting the demands of a new day requires new ways of thinking.

Many fleets have become adept at utilizing their own technologies, but still others are not quite up to the challenge. These operators outsource fleet optimization and data analysis, creating a whole new sub-set of jobs and market growth.

This interconnectivity is being driven even when the wheels aren’t rolling. Drivers are using personal smartphone or tablet-like devices to handle things like finding their next load, planning their route, or managing their expenses.

New commercial platforms are available that can combine the needs of the fleet with the needs of the driver through the use of specialized applications and services. So what are the trends that are creating the fleet of the future?

The Network Evolves

The cloud is changing more than just computing. New software-based fleet management systems are becoming increasingly compatible with personal computing devices that drivers use to manage their operation.

Today’s most popular smartphone and computer operating systems are able to smoothly run a host of fleet management applications.  Electronic logging applications, proof of delivery and driver messaging are only a few of the options available through modern technological applications and services.

Devices are able to connect to the cloud and utilize any number of mobile device management (MDM) applications. By removing the hardware element, information can be quickly accessed and efficiently distributed across an internal network.

The Vehicle Evolves

Innovation in trucking is visualized in today’s advanced vehicle designs. New technologies are coming available and manufacturers are adapting to the idea of a connected truck.

As mobile fleet management system and truck manufacturers team up, the in-vehicle communications hub expanding. Now the communication web encompasses personal devices, vehicle hardware and software, back-office networks, and more.

The idea of keeping moving assets in contact with maintenance, for example, has long been a static process. With new technologies, how this connectivity takes place, how data is stored and analyzed, and how quickly the transfer of information happens is upending the status quo.

New platforms are offering much more complete mobile solutions that go beyond traditional telematics devices. Thousands of trucking-related apps are available for multiple devices and platforms.

Specialized deployment and training can now be accessed and driver learning curves are low. In an industry used to standard office paperwork, these new ways of running the business may seem complex. Fortunately drivers have always been at the forefront of technological change and they adapt quickly.

What is the Future of Trucking?

Mobile technology trends are almost always centered on user experience, whether for personal or business applications. Interconnectivity, fast data transfer and accurate analysis all become crucial factors in the fleet of the future.

As technology marches on, carriers and drivers will utilize devices that offer ease of use and convenience while lowering costs, increasing efficiency and spurring return on investment. Services will spring up that cater to specific needs, and indeed are already available. Things like freight factoring, load optimization, and load boards are continually advancing with technology.

Will you be ready for the fleet of the future when it pulls up to your operation?

Best Inquiries on Freight Factoring: Getting to Know Your Best Options

Ready for some myth debunking about the logistics industry? Sure, it’s a gargantuan multibillion-dollar multi-corporate enterprise complete with the veins and arteries rivaling that of the human body, what with the vendors, semis, stations and bills of lading long enough to choke the heavens and suffocate the fiery pit of Hades. It’s exhausting, and many of us may think it’s the bane of our existence, but the fact is this – the trucking industry fuels our economy.

This, naturally, makes us think that all logistics corporations are these mega-giant conglomerates with the power to level a planet, very much like the Empire’s Death Star in Star Wars. Here’s the truth: logistics companies are actually quite small.

Here Are the Alarming Facts About Freight Companies

Statistics never looked as polarizing as they do here, starting with the general revenue generation we see from corporation to corporation. This is a $255B-year enterprise with over 500K companies out there in the U.S. doing business for multiple other corporations requiring logistics. Did you know, though, that….

  • 4% of Those Trucking Companies Have Less Than 28 Trucks?
  • Or How About the Other 96% Having Less?
  • Even More Staggering, 82% of All Companies Actually Have 6 of Fewer Trucks

The industry doesn’t seem that ‘big’ now, doesn’t it? It’s like comparing dinosaurs to fire ants. What you have to understand, though, is that a colony of fire ants can probably do that much more damage than a triceratops can thanks to the overwhelming numbers. It makes sense.

Knowing That, How Do These “Small” Freight Companies Then Stay in Business?

It’s a good question, because as entrepreneurial as we may be, everyone knows how hard it is to ensure payments stream in. It’s a lot easier to send an invoice than to receive one, and no one knows that better than a logistics company. Those bills are hefty –

  • They Pay for Petrol
  • Drivers’ Salaries
  • Health Insurance
  • Repair and Maintenance
  • Operations
  • Technology

Rightly so this logistics industry is a big one! Likewise, companies might have trouble maintaining those bills, and a lot of times these small logistics businesses will spend more time chasing after invoices over driving to destinations, and it is unfortunate. How do they maintain operations, bill payments? It’s simple: it’s called freight factoring.

The Idea Behind Freight Factoring

Bank loans are a major hit or miss for logistics companies, plus they often can’t wait the 30 to 90 days for collection of invoices, because by then, bills need to be paid, trucks need to be maintained, and drivers need to get to hospital for many cases of accident claims or highway hypnosis. It’s not pretty.

However, ‘freight factoring’ solves the problem nicely, and it’s just one of the ways a smaller trucking company can eliminate wait times for invoice payment, creating a continual cash flow even when clients don’t pay right away.

A freight factoring company actually doesn’t have a thing to  with logistics. There are no trucks. No drivers. Rather, what this kind of company does is collect all invoice payments for you and then pays you 70% or more upfront. Once all the invoices have finally been paid, the factoring company then pays you the remainder, minus a factoring fee, and that fee often runs anywhere between 1% to 3% of the dollar amount. That’s not a bad deal.

It’s like a cash advance, basically, and we all know how that stuff works. There’s a risk. This is why it’s important to always inquire about freight factoring company’s policies, just to make sure that the company is the right one for you, because there are a variety of payment structures to consider. Which one’s the right one for you is the question.

  1. How quickly can you get funding? – Always ask this question. Freight factoring is just as competitive as freight delivery, so start shopping around by seeing how expedient companies are. Look for “same-day funding” or “next-day funding.” Others will only fund your invoices after verifying customer bills, and that can take more than a couple of days, so be selective.
  2. What kind of service do you provide? – Know what their operations are like. If they have live communications, perhaps a 24-hour call service, you might have a contender there. Customer service has to be at its premium. If not, move on to another option.
  3. What about credit protection? – You have to know that there are two different types of ‘factors’: non-recourse, and recourse. Recourse factor companies will send chargebacks to you for all unpaid invoices. Non-recourse factor companies will actually protect your credit in the event clients don’t pay those invoices. That’s good for you, meaning you’ll still get paid even if the invoices don’t. A company offering this service, though, will obviously end up costing the logistics corporation more, so weigh your options carefully.
  4. How much do I get advanced, and how much do you hold onto? – The fees vary. Just know that. This is shopping. Picture you, the logistics CEO, at the store, shopping for the best can of soup to buy. You have a budget, so you want to cut corners and go with the sale prices. It’s the same thing here in this logistics business. Be price savvy and thrifty (but to a certain point, obviously).
  5. How much will it cost to use your services? – Again, it’s all about competition. Some companies will charge more, some less. It’s all based on sales volume, number of invoices, number of customers, the contract period and other variables. Do your homework. Factor in the costs on your end and see if you still come out on top with some ROI to boot.
  6. How do you carry out credit checks? – This is insanely important, as credit checks are a must with freight factoring companies. They need to know that your customers will pay, and there’s no better way to measure that than with a credit check. Know how your freight factoring company does those credit checks, because it’ll determine if that factoring company will even work with you.
  7. How much of the billing do you handle? – A big part of the appeal of freight factoring is its all-inclusiveness. Many will simply handle everything for you, not just paying you. They’ll do the billing, and if you shop right, some will actually do the invoicing for you, saving you more time and money in your own operations. These are all factors that you have to take into account, plus the fees, and then crunch your own numbers to see if there’s a good investment there.
  8. What are your requirements for invoicing? – There are some special fine prints, written between the lines, for many freight factoring companies, so find out if you’re allowed to specify which invoices you want to factor, or if you have to do a ‘blanket’ contract. Find out, too, if the company will charge on the gross amount or the net amount.
  9. How long is the contract period? – Some companies are flexible, and some aren’t. Know what you want. Many contracts will go for as little as 3 months and as long as 36 months, and everything in between. Others will give you the option to cancel at anytime. Which one would you prefer? That’s the big question to ask…

So Many Choices, so Many Deliveries to Make

Those are your nine top inquiries. Consider them carefully. It’s a lot of work and consultation, yes, but it’s all worth it in the end. The fact is this – you can afford to pay a fee to ensure your invoices get paid on a timely basis, because for you, the logistics company, time is money.

Just make sure you work with the right freight factoring business. The wrong one can end up being just another expense you can’t pay thanks to the fact that you’re still waiting on your clients paying your invoices.

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