There are 7 Steps to managing your cash flow. In this post and the next, I’ll cover the details; I’ll explain the first three here.

One: Your accounts receivable and your Days Sales Outstanding (DSO) figure:

For small motor carriers, cash flow management is avoiding long periods of cash shortages, caused by having too great a gap between when accounts receivable are paid and when your bills are due. If you run out of cash before you run out of month, you’re in trouble; do it month after month, and you’re out of business.

Whenever you allow a shipper to pay on credit, you become a lender. If done with limits and controls, issuing credit can be an effective revenue enhancer. Done haphazardly, it can lead to a cash flow nightmare. Constantly look at your Days Sales Outstanding (DSO). DSO is how many days from the time a shipment was dispatched or delivered to when the hauling invoice is paid in full. If final payment on a shipment exceeds 50 days from dispatch, or 40 days from delivery, you have a problem; and the more accounts which fit this description, the bigger the crisis. The bottom line is, if you’re going to issue credit, make sure your customer pays in a timely manner.

Two: Knowing when and when not to issue credit to a customer:

Give credit only where credit is due. Having your staff run the standard credit check and note a company’s Dunn & Bradstreet score is a great start for that business trying to establish credit with you, but it’s only a start. Usually by the time either a credit reporting agency or D&B has negative credit information it’s already too late, as typically this information is months old.

Do your own credit check too. Have customers list their local credit references and banks. If a company fails, the small businesses who have issued credit to it are at the end of the collection list. So you must know the risk your customers represent to your revenue-producing capacity. What’s their credit rating? How’s their paying history? What are their projections for growth? What are their weaknesses? Are there problems on the horizon for this company or their industry? Labor troubles looming, foreign competition, recalls, product or patent lawsuits? Is there anything that could interrupt your customer providing you with loads? And remember, this is not a one-time process. You should track your customers’ credit worthiness minimally every six months.

Three: Manage your credit—know your credit score—and don’t abuse it:

Your ability to borrow cash from time to time can get you through rough economic times and periods of growth. Abused credit is one of the greatest destroyers of small businesses, right behind not having a business plan. Create a strategic credit plan which outlines when, why and how you are going to borrow money. Never borrow more than you need. Have a definitive payback plan. And always make more money than what it’s going to cost you to borrow it.

In the next post, I’ll cover the rest of the 7 Steps to cash flow management for truckers.

Good loads and good roads, everyone.

Timothy Brady © 2010
www.timothybrady.com
731.749.8567