Common Cash Flow Issues for Carriers (and How to Solve Them)
The ability for motor carriers to forecast cash flow by analyzing data and identifying yearly and quarterly trends is not so simple anymore.
Countless economic disruptions over the last few years — including large fluctuations in supply and demand, materials shortages, labor shortages, disrupted trade routes, rising fuel costs, inflation, and a looming recession — have resulted in delayed payments and significant cash flow forecasting challenges for carriers.
While carriers can’t control the economic climate, there are steps they can take to weather the storm. In this article, we’ll go over some of the most common cash flow issues and present some strategies for solving them.
Carriers should always look for portfolio diversification and expansion opportunities, like moving into new markets or participating in intermodal bids. In such a volatile market, however, opportunities for new business relationships won’t necessarily come as steadily as they have in the past. Therefore, putting all your eggs into the “new contracts” basket would be unwise.
One of the best ways for carriers to maintain steady cash flow during economic uncertainty is to prioritize client retention. The last thing you want is to lose a long-standing contract to a competitor, so it’s more important than ever to generate repeat business.
Persuading existing clients to choose you over competitors often comes down to excellent customer service. Proactive communication, omnichannel 24/7 service, and multilingual capabilities can go a long way toward convincing clients to stick with your business.
Key takeaway: Provide outstanding customer service to prevent churn and nurture existing relationships.
At first glance, driver churn may not seem like a high-priority cash flow issue. However, your cash flow can take a huge hit if you have to recruit, onboard, and train a large number of new drivers — especially if you have to do so in a short period of time.
Competition for drivers is fierce. To keep applications rolling in, carriers are battling to offer higher pay and better benefits than competitors, driving up payroll costs.
Due to initial costs associated with recruiting, onboarding, and training, it can take up to six months to break even on your investment in a new hire. An estimated 57% of newly hired drivers quit within the first six months of employment, and 35% quit within the first three months; companies often pour resources into new employees only to have them quit before the investment pays off.
High driver turnover also makes it incredibly difficult to maximize tractor utilization. Delays are more likely to occur as new drivers learn the ropes and work their way up to standard efficiency levels. To account for those potential delays, fewer loads are booked, slowing cash flow.
With those issues in mind, it’s clear that high driver turnover can be devastating for cash flow, so it pays to retain drivers. Offering competitive pay and benefits is a good start, but carriers also need to invest in driver technology that makes the job easier and gives drivers a sense of community.
Key takeaway: Focus on driver retention to contain hiring and training costs.
Lack of data visibility
The freight and transportation industry requires excellent agility, especially during increased disruption. Carriers must react quickly to shifting market conditions, planning for multiple scenarios based on forecasting.
Proactive decision-making requires timely data access. Unfortunately, for some carriers, there’s a significant delay between data capture and visibility (an issue mainly due to outdated technology and processes).
Each decision you make — and every second of indecision — impacts your bottom line. If your decision-making is reactive rather than proactive, you’ll have very limited control over your cash flow. With the right tools, however, carriers can decrease that delay and improve cash flow control by enabling:
- Proactive planning for disruptions
- Faster invoice verification and payments by customers
- Better customer experience and customer relationships
- Insight into how to quickly optimize your operations by addressing current inefficiencies
Key takeaway: Better data visibility leads to more accurate forecasting, giving you more control over cash flow.
If you want to optimize cash flow, you also have to optimize your payment processes.
One of the most common cash flow challenges for carriers is a delay between providing services and getting cash in hand. Sometimes this delay is on the shipper’s or broker’s end, but billing issues on the carrier side can also slow things down.
The first step of getting paid quickly is getting accurate invoices sent out quickly. Leveraging technology to process important documents like bills of lading (BOLs) is best practice, as it can reduce errors, reduce back office workload, and improve data quality.
Better yet, outsourcing the freight bill processing function to an external billing company will guarantee these benefits are delivered as part of their service level agreements (SLAs). This directly and immediately translates to less time spent correcting billing errors and reduced days sales outstanding (DSO), in addition to instantly regained profitability due to margin regrowth and prevented overhead expenses.
Additionally, carriers can mitigate the risk of delayed payments by:
- Thoroughly vetting shippers, brokers, 3PLs, and any direct customers booking with you
- Check their credit and payment history
- Set relevant thresholds before signing an agreement
- Offering incentives (commission, discounts, or something else) for prompt payment
- Offer customized goal-based bonuses where you pay a percentage of an incentive to match the percentage of the goal met
- Offer bounties, or fixed payments, based on specific actions you want the shipper, broker, or 3PL to take
- Issuing penalties for late payment
- Charge late fees and interest
- Reporting bad players in your marketplace(s)
- Clearly communicating about payments
- Document all details before the agreement is signed
- Be transparent about accessorials and other charges
- Maintain consistent correspondence through shipment lifecycle
- Follow up after invoice has been sent
- Promptly pursuing recourse for non-payment
- File a claim
- Report to DOT OIG
- If legal action is required, consider leveraging an association with some legal power, such as OOIDA
Key takeaway: Invest in technology and processes that streamline billing and payment.
With a potential recession on the horizon, finance management — particularly cash flow — is a key area of focus.
Delayed payments, client and driver churn, and lack of data visibility can all wreak havoc on cash flow. Luckily, carriers can mitigate these issues by providing excellent customer service, improving the driver experience, increasing data visibility, and above all, optimizing payment processes.
One of the best ways to improve the efficiency of your freight bill processing is to partner with an experienced business process outsourcing (BPO) organization. With the right people, processes, and technology in place, you can get paid on time and maintain consistent cash flow — no matter the challenges.
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