Cash flow for carriers: settlements, factoring and fuel cards

A carrier can show a healthy profit on paper and still struggle to make payroll. The reason is timing: fuel, drivers and truck payments are due now, and the money for the load arrives weeks later.

This article walks through where cash gets stuck in a trucking business and how to keep enough on hand. It's part of our guide to the financial side of running a trucking company.

The gap between hauling and getting paid

Follow one load through the business:

1. Day 0: You fuel up on a fuel card. You'll pay for that fuel within days.
2. Day 3: The load delivers. You send the invoice, the bill of lading and the proof of delivery.
3. Day 5: You run payroll for the driver who hauled it.
4. Day 35 to 60: The broker or shipper pays, if the paperwork was complete.

For every week of revenue, you're carrying 5 to 8 weeks of costs before the money comes in. The faster you grow, the bigger that gap gets. Adding a truck means more fuel and wages going out long before its first load is paid for.

Example: a growing fleet

A carrier billing $20,000 a week on 45-day terms has around $130,000 sitting in unpaid invoices at any time. If it adds two trucks and its billing goes to $28,000 a week, it needs about $50,000 more in working cash. That's on top of the down payments on the new trucks.

That's why growing carriers so often run into trouble in the months right after an expansion.

Shorten the gap first

Before borrowing or factoring, get paid faster for free:

• Invoice the day the load delivers. Every day of delay adds a day to your wait.
• Send complete paperwork the first time. A missing proof of delivery or a wrong reference number is the most common reason a payment gets kicked back to the end of the queue.
• Track detention, lumper fees and accessorials on the invoice, not in a separate email after the fact.
• Follow up at day 30, not day 60. A polite call when an invoice is due works better than a stern one when it's a month late.
• Know who pays slowly. Your bookkeeping should give you an aged receivables report showing which customers are over 30, 60 and 90 days.

What factoring really costs

Factoring companies buy your invoices and pay you within a day or two, for a fee. It can be a lifeline for a new carrier, but the fee is easy to underestimate.

Example: a 3% fee

A load pays $3,000 on 45-day terms. A factor pays you $2,910 in two days and keeps $90.

$90 doesn't sound like much. But you're paying 3% to get your money about 43 days early. Spread over a year, that's roughly the same as borrowing at 26% interest.

At $20,000 a week in billing, a 3% fee comes to about $31,000 a year. That's more than the payment on a truck.

When factoring makes sense

• You're new and don't yet qualify for a bank line of credit
• You're hauling for customers whose credit you can't check yourself
• You use it as a short-term bridge while you build a reserve

What to check before you sign

• Recourse or non-recourse: with recourse, if your customer doesn't pay, you have to pay the factor back.
• Every fee: setup fees, minimum volumes, wire fees and "reserve" holdbacks.
• Whether you must factor every invoice, or can choose.
• How to leave: notice periods and how your customers are told to pay you directly again.

Record factoring properly in your books. The full invoice is your revenue, and the fee is a financing cost. Netting them together hides what factoring is costing you.

Fuel cards: convenient, and easy to lose track of

Fuel cards give you discounts, better control over what drivers buy, and the per-jurisdiction fuel records you need for IFTA. They also make spending invisible until the statement arrives.

• Reconcile the fuel-card statement every week or month, line by line, to trucks and drivers.
• Watch for non-fuel purchases and fuel bought for the wrong unit.
• Remember fuel advances. If a carrier or broker advances fuel against a settlement, it comes off your next payment. Owner-operators should check every settlement deduction against the original advance.

Owner-operators: read every settlement

If you're leased to a carrier, your weekly settlement is your income statement. Check it the way you'd check a paycheque:

• Is every load on it, at the agreed rate?
• Are the deductions (fuel, insurance, escrow, plates, trailer rental) the amounts you agreed to?
• Is your escrow balance going up the way the lease says it should, and do you know how to get it back when the lease ends?

Build three reserves

The cheapest money is the money you set aside yourself. Keep these in separate bank accounts so they don't get spent by accident.

1. Repairs and tires

Set aside a fixed amount for every kilometre driven. $0.12 to $0.20 per km is a common range, and older trucks need the high end. At 150,000 km and $0.15/km, that's $22,500 a year. When the $18,000 engine repair arrives, it's covered.

2. GST/HST

The GST/HST you collect on your invoices belongs to the government. Move it into a separate account as you're paid, and the return is just a transfer. Carriers who spend it end up with a tax bill they can't pay, plus interest. See GST/HST for trucking companies.

3. Income tax

Owner-operators who aren't incorporated usually pay income tax in quarterly instalments, or as one large balance in the spring. Set aside a percentage of every settlement. We can tell you what that percentage should be for your income.

Plan for slow seasons

Many Alberta carriers see seasonal swings: spring road bans on secondary highways, harvest peaks, and the slowdown after the holidays. Look back at the last two years of revenue by month. If the same months are always slow, build the reserve before they arrive.

The bottom line

Cash flow problems in trucking are rarely about a lack of work. They come from timing, fees and money that was never really yours. Clean, current books make all of it visible. If you'd like us to set up your reserves, track receivables and reconcile your fuel cards every month, here's how we work with carriers.