For shipping and trucking companies, recessions can be particularly tumultuous. An economic downturn tends not to alleviate the labor shortage concerns in the industry, while also causing a downtrend in shipping volume due to lowered consumer demand. Unfortunately, tumultuous times have arrived. It is now consensus among economists, according to BNN Bloomberg, that Canada will see a recession in 2023. As of now, median estimates of economists are that the economy will contract in the first two quarters, by 0.5 percent annualized and 0.6 percent annualized respectively.
For transportation companies, what does this mean? And how can you prepare your business to handle a less than favorable economy and come out on the other side? Invoice factoring is a major solution to the most pressing issues any shipping company will face moving forward.
Factoring Can Help with Price Negotiation
Freight volumes are expected to drop over the next six months. This will place your clients in a position to better negotiate terms with you and will lower the overall number of contracts you can secure, putting further downward pressure on what you can charge. Even existing clients may want to negotiate a lower charge for shipping, but you can hardly afford to further drop your revenue.
One smart way to keep you invoices as high as possible is to extend payment terms, adding an extra 30 days onto your invoice due date. Retailers and others that you do business with are also strapped for cash during a recession and extending payment can be a very tempting offer for them. The problem is that doing so can wreak havoc on your cash flow.
Invoice factoring is an ideal solution in these circumstances. Invoice factoring is when you send your invoice to a client and your factoring company pays it right away and then collects the money from your client later. So, while your clients can wait to pay the invoice, your cash flow does not suffer.
Factoring Can Help with Cash Flow
One of the top concerns for transportation companies comes from shipping partial truck loads when they are used to shipping full truck loads. Your costs are almost as high as when you ship a partial load, but you are paid much less. This reduction can make it challenging to maintain operating costs as basic as payroll.
Most shipping companies will need to downsize in response to this. But figuring out where you need to cut back when your cash reserves are dwindling is not ideal. You essentially have a ticking clock on you, and it can be a challenge to keep a strong staff, maintain equipment, and pay for the things you truly need. When you use invoice factoring you have access to your accounts receivables immediately. This can make it easier to retain what you want to, keep your staff paid, and have the money on hand to keep taking on contracts.
Factoring as a Financing Alternative
Invoice factoring is also a strong alternative to financing during a recession. Financing options through your bank will be subject to increasing interest rates. While there have been suggestions that the Bank of Canada should stop raising rates, one columnist at the Financial Post points out that there are few
signs that they will. You’re now borrowing at a much higher interest rate and undermining the future success of your business, even if you do make it through the coming recession.
Talk to JD Factors about how invoice factoring can help your business to stay afloat through the recession and come out the other side intact.
www.jdfactors.com or 1-800-263-0664.