Planning for a cash shortage

If your small trucking company seems like it is operating on a week-to-week basis, you are not alone. According to a new survey from Mercator Advisory Group, 75% of small businesses in the U.S. routinely delay purchases at least once or twice a year because of cash flow issues. For trucking companies, which are dependent on shippers paying invoices in a timely manner, it is a situation that is all too real.

Mercator conducted a web-based survey of small businesses, defined as those with between $500,000 and $5 million in annual sales, this spring. The survey, Business Credit Cards and B2B Payments: More Credit, Please, is the second of three reports summarizing the results of the 2017 Small Business Payments and Banking Survey. 

The survey found that small businesses turn to a number of methods to survive that cash flow problem, including looking for more generous credit lines from business credit cards and loans from banks and alternative lenders. Nearly 80% of respondents have a business credit card and most carry a balance – less than half pay off their entire balance each month, the survey found. This leads to interest accruing, costing the business even more in the long run for money it is borrowing to fund short-term gaps.

Despite their cash flow problems, Mercator found that small businesses are generally optimistic about 2018, with 80% expecting their sales and profitability to increase next year. But cash flow looms as a threat.

“Managing cash flow is a top concern for small businesses. Access to credit by borrowing on business credit cards and being able to obtain business loans to supplement existing credit lines are essential to keep the businesses afloat and invest in new products and services to keep them growing and profitable,” wrote Karen Augustine, Mercator Advisory Group’s Senior Manager of Primary Data Services, the report’s author. 

Small business trucking expert Tim Brady has written on this topic on numerous occasions. To better manage your cash flow, Brady recommends monitoring your finances so that you are aware of a potential problem before it happens. Finding out you are short of cash after it has happened makes it difficult to manage through the crisis. Banks are reluctant to loan money at this point because you are now a credit risk, and creditors become concerned they won’t see any of their money, further tightening that financial noose.

So how can knowing a potential financial problem beforehand help? Brady advises contacting creditors and even your bank once you are aware of a potential situation. Creditors are more willing to help you work through problems before they occur; some will extend terms or even offer to let you skip a payment.

It is also advisable to have access to capital through a revolving line of credit of some kind. This can be a bank loan or maybe an asset-based loan. Companies such as Triumph Business Capital specialize in developing programs to assist carriers and shippers in managing through tough times, including providing invoice factoring.

The best advice, though, remains building up a cash reserve to lean on in times of need. If you have to tap that reserve, reinvest in it once the immediate crisis passes. Brady suggests building in to your hauling rate a small percentage to build that reserve.

While these steps may not prevent a shortage of cash, they may prevent you from having to tap into your personal accounts to keep your business running.

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