In the United States, the logistics industry specifically the trucking industry is the backbone of most industries. According to the information provided by the American Trucking Association (ATA)|, trucking represents 80% of the country’s freight bills drastically outpacing rail and air freight. Nevertheless, this industry has faced significantly growing issues over the past decade. Regardless of it being a billion-dollar industry, the profits from these operations don’t reflect the same. It means that the industry is profoundly affected by changes in US gross domestic product, tariffs and duties, and fuel prices.
Also, high competitions, strict regulations, scarce workforce, and growing accounts receivables are some of the challenges in this sector.
Reasons for Shrinking Profit Margins in the Trucking Industry
High expense cost
Insurance, equipment, and licensing are some of the high costs involved in the logistics sector. Taxes are another notable expense. According to ATA, in 2015, commercial trucks pain $18.7 billion and $22.6 billion in federal and state highway-user taxes, respectively.
The current trend of increase in fuel prices year after year is another reason for rapidly shrinking profit margins.
Labor acquisition cost
The limited source of drivers and other workers has seen the companies pay higher wages than their competitors. This strategy is to retain the best drivers and provide the best services to their clients.
Growing accounts receivables
Despite so many high costs, this sector has rapidly growing accounts receivables. When a trucking firm delivers goods to clients, an invoice is released and is payable later. Many customers usually fail to honor the invoices on time. Since other challenges are controllable, the non-payment or delayed payment forms the most significant problem. Regardless of whether the clients pay on time or not, they still have to pay insurance fees, drivers’ salaries, and recurring expenses. Therefore, delayed or unpaid accounts receivables negatively impacts on the company’s profit margins.
Cash flow management
As the trucking industry is a high-volume business with shallow profit margins, it leaves large accounts receivables regularly. In cases of slow payments from clients, it would result in holding massive amounts that limit the operations of the company.
These companies operate on thin profit margins. Therefore it is vital to ensure maximum utilization of the equipment to get the most out of them. That means that all other costs, such as license and insurance, will also be utilized maximally.
Delayed payments will hinder this utilization and maintenance of assets like trucks.
The industry contains several thinly capitalized sole proprietors, truck drivers, and freight brokers. Therefore, if one or two shipments do not go as intended, the proprietor may apply for bankruptcy protection or even exit the industry. Thus, delayed or unpaid bills are a threat to this line of work. It is vital to draft a plan to help in debt collection.
Record keeping is another challenge in the trucking industry. Since small owner-operators and trucking firms dominate the sector, it is hard to find a proper record-keeping system. Therefore, poor reporting risks the chances of lost invoices, miswritten invoices, and wrongly addressed questionable invoices. Hence, poor reporting and record-keeping slow down payments and increase the chances of non-payment.
As earlier discussed, the participants of the trucking industry have thin capital. Thus, most of them use factoring as a way of financing their operations. Factoring is the sale of the uncollected invoices to a debt buyer at a discounted amount. As this method is widespread in this industry, it is also a costly solution, as it takes a bite of the business profits. Therefore, companies should embrace other financing methods, such as bank loans.
Guidelines for Successful Debt Collection in the Trucking Industry
Establish penalties for late payment.
Implementing penalties for late payment encourages quick honor of the invoice. It also helps in lessening the risks of non-payment.
In the case of a delinquent client, record all information shared during the calls. It helps ascertain whether ever to do business with that customer again.
Prepare for anything.
In case of an overdue account, companies should review all documentation, including the contract and previous invoices, before contacting them. It helps to ascertain that the company is up to date with the client.
Make use of a Transport Collection Agency.
If the trucking firm finds it hard to collect debts, seeking help from trusted debt collection agencies could be the last option. Collection agencies start with a diplomatic approach to maintain the relationship between the company and the client. As it is what they do all day long, they possess specific skills and tricks that always get the account settled. Trucking companies make mistakes of waiting beyond 90 days, hoping the debtor will pay. The fact remains, if they couldn’t pay in 90 days, then the chances of paying falls substantially. That is the right time to contact the collection agency.