Why Owner-Operators in Trucking Must Collect to Survive
The year 2019 was a brutal year in the trucking business as a whole. An estimated 800 trucking logistics companies went out of business, and of course, many of the laid-off truckers were owner-operators.
According to Globeconfreight.com only around 9 percent of truck drivers are owner-operators.
Why so few? Because while being an owner-operator allows you the freedom to run your own trucking business, not only are there significant expenditures per month on fuel, truck payments, trailer payments, insurance and more, you also have to buy your own health insurance, and you’ll need a good accountant to figure out your taxes. To cover these expenses, owner-operators get paid an average of around $1.30 to around $1.65 per mile that they drive a load. They don’t draw any type of salary that pays for the food that they eat, wasted miles dead-heading to another site to pick up a load, and of course, all the expenses such as fuel, insurance, truck and trailer payments, bookkeeping fees, accountant fees, hotel expenses if they don’t sleep in their truck, and of course taxes.
Indeed.com estimates that while the average, independent owner-operator takes in $183,000, 70 percent goes out the door in expenses. This means overall, the average independent trucker makes $50,000 to $60,000 dollars per year.
The $12,000 per year mistake
One way to boost independent owner-operator profitability is to reduce fixed costs, and of those costs, one of the most expensive, and the one with the biggest variety of charges is truck insurance.
As One Rich, an owner-operator and a Youtube content explains, truck insurance varies wildly from state to state. As he explains in his video, this owner-operator was paying $1,800.00 for his Truck Insurance. It was only after consulting with other owner-operators that he discovered that because he received his insurance in Florida, which has one of the highest insurance rates for trucking insurance in the country, he was paying as much as $12,000 extra over trucker who bought their truck insurance in Texas.
Ask any owner-operator and they will tell you that saving $1,000 a month on truck insurance can make or break an independent operator. Other ways to reduce expenses significantly for an independent owner-operator include buying used rather than new.
A semi-truck that is well taken care of can expect to last 15 years or so. By buying a truck even three or four years old, providing you have it inspected by a professional truck mechanic can lower your monthly payments down four hundred dollars or more.
In general, the best deals for a used semi come from buying truckers you know who are personally selling because they’ve either bought a new truck, or they are retiring from trucking. But good bargains can be found.
Using a collection agency to collect unpaid invoices.
Of particular concern by owner-operators is when they get paid not by individual miles logged, but by a percentage of the load. Of all the truck drivers out there, approximately 50 percent of those are paid as a percentage of the load. The percentage rates can be as low as 25 percent to as high as 85 percent. Generally, most owner-operators wind up getting loads from a certain carrier or two. Which means that if you work for a carrier, then they will pay you directly, whether you work for a carrier, then you’ll get paid by them, and no viable carrier will ever risk missing their payments to truckers.
Worry comes for independent owner-operators when they haul loads directly for companies rather than picking up a load through carriers. The problem here is that they may wind up getting paid 30 to 40 days or more from independent businesses, even though their operating expenses remain fixed. If an independent owner-operator accepts a load outside of the typical carrier conduit, he may make more money overall, but that is as long as the owner-operator can collect.
Too many unpaid or overdue invoices from an independent-operator may cause the independent owner-operator’s business to grind to a halt. Very few can afford to not get paid on two or three invoices a month. So what option does an owner-operator have if he doesn’t get paid after delivering a load? Basically two: hire an attorney or hire a debt collector.
Attorneys are great at sending threatening letters and taking a business to court, but the problem here is that a business attorney may charge $150 an hour for his service. The alternative is to contact a debt collection agency. Business debts are generally easier to collect than personal debts as business wants to remain viable, and the delay in payment are sometimes simple mistakes. Rather than spending time chasing the debt yourself, which 99 percent of the owner-operators don’t have the time to do, a typical collection agency may collect on many of your past-due invoices for a small percentage of the total.