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Trucking is a cyclical industry sector that comprises of different companies that ship goods to customers. With fleets of varying sizes, these companies generate revenue domestically because shipping overseas requires sea-based or air transportation. Therefore, trucking companies are not easily exposed to fluctuations in foreign currency.
Typically, the trucking industry is one of the leading indicators of the health of the overall economy. When an economic upswing is in its early stages, customers want to ship more goods to prepare for strong business conditions. On the contrary, an economic slump is underway if demand for trucking services decrease.
Interestingly, the trucking industry continued to thrive during the latest economic recession. Trucking dominated transportation services with 83.7 percent in revenue, according to Business Insider. Even with strong revenue numbers, there is a shortage of truck drivers to keep the wheel turning. According to the American Trucking Association, there will be a rise in the demand for trucking services. Over the next 10 years, projections show that a 30 percent increase in demand will require at least 600,000 more tractor trailers on the road.
This is good news for trucking companies that are primed for growth. There are business and financing solutions for more to capitalize on the expected growth. Those in the trucking industry can also utilize invoice lending through truck factoring companies for major expenses, to hire more drivers and get their fleet ready.
Major Expenses for Trucking Companies
Trucking companies have several major expenses that have a direct impact on profitability. One expense is the cost of labor, which directly impact earnings. A deep roster of skilled drivers and freight handlers are essential to meeting deadlines. Currently, the reduced number of available drivers intensifies the competition for companies looking for qualified talent.
Offering competitive wages and benefits will help trucking companies attract top talent. Other labor-related costs include workers compensation coverage and pensions.
Another important expense for trucking operations is diesel fuel. Even when managed carefully, long over-the-road trips, large engines and heavy loads increases fuel consumption on a daily basis. This was an expensive consideration even before gas prices increased.
Usually, customers pay surcharges to cover diesel fuel costs. When fuel prices rise too quickly, companies face a lag time in recouping the costs. This delay goes directly to the profitability of trucking companies. Nevertheless, most trucking companies prefer surcharges to hedging long-term fuel contracts.
Trucking companies collect surcharges from customers after invoices are paid. So, what does are companies to do while they wait – sometimes for two months – for customers to pay invoices? Often, trucking companies do not have time to jump through hoops to receive funds from traditional lenders.
In the past, some trucking companies could easily qualify for traditional funding. However, recent economic changes have tightened the amount of business credit and loans. Most banks are looking for impeccable financials and credit histories before considering a loan application. Tighter credit qualifications can create ongoing cash flow problems for some companies.
When trucks need fuel or a qualified driver needs to be paid, cash is king for trucking companies to keep operating. They need a brief application process that understands trucking industry operations and the importance of time. With the right invoice factoring company, trucking companies can receive enough capital to cover major business expenses.
Additionally, there are some factoring companies that offer receivable based lines of credit. This removes the concern about having sufficient funds to cover daily expenses such as refueling trucks for the next day's deliveries.
What Trucking Factoring Does for Companies
Trucking factoring is an excellent way for companies to use invoices as a valuable asset for daily operations, continued growth and expansion. With a reasonable application process and simple terms, many trucking companies can receive a significant amount of funds.
A reputable factoring company such as 1st Commercial Credit offers many services that fit the needs of the trucking industry. Most companies can receive more funding through this service than any bank would offer. Convenient online services, fast approval, free online credit checks and fuel advances are just a few available services.
There are various reasons that trucking companies may experience cash flow problems. Some get increased business opportunities and lack the capital to expand. Adding clients in new markets or taking new routes, there is an automatic added cost for more equipment, fuel and labor. Having optimal dispatching arrangements does not avert the problems that a cash shortfall can cause.
Most are unable to recoup the costs of expansion until they receive payment from delivered services. This is simply the nature of the trucking industry, yet many sectors within the economy rely on a continuous flow of services. It is only fair that trucking companies have reliable cash flow services to meet the demand.
Regardless of the operation or fleet size, all trucking companies have similar needs that influence their success – or failure. Trucking companies can be a one-person truck, a midsized firm or a large corporation with thousands of trucks. Whatever the size, this is the type of business that can provide significant revenues.
However, the right level of investment is necessary before these companies can see a positive bottom line. Financing needs might vary slightly, but there are guidelines that remain the same.
Some trucking factoring services might have a minimum volume requirement that helps trucking companies save money. Other factoring services may offer same day funding and free online credit checks.
Federal regulations could have an impact on how trucking companies operate in the near future. For instance, the implementation of new rules for hours of service could strain capacity levels in the industry. Tightened capacities could lead to intermodal rail transport services.
A shortage of truck drivers is another threat to the sustainability of trucking services. If the economy picks up, the current marginal impact could become a significant problem. The last thing a growing economy needs is a bottleneck created by limited trucking services.
The slow and steady pace of the recovery will require replacing aging fleets and overcoming the negative perception of environmental dangers. Overcoming this obstacle might be possible by using alternative sources for fuel that could provide long-term savings.
These obstacles are not uncommon for the trucking industry that is centered on freight tonnage and revenue. Companies must make every effort to overcome the obstacles and remain strong for the economy. Opportunities for expansion remain and trucking companies that prepare will enjoy growth and success for many years to come.
Expansion of operations and improving fleets is often financed with a decent cash flow. Borrowing money from traditional banks for major expenses is not necessary. Neither is carrying a heavy debt burden after an acquisition or merger. Cash reserves may build over time, but trucking companies need right not capital for investments and daily expenses.
As the trucking industry faces challenges to sustainable growth, one area of stability is factoring services.