Delivery-to-Cash Management to Maximize Cash Generation

Two practices in trucking that increase cash quickly

In transportation, cash reserves erode quickly during market downturns. There are a few reasons for this.

1. Poor profits - Lower rates and lower volumes equate to lower profits and cash balances.

2. Lower Account Receivable - Factoring and asset based lines of credit are often based on a % of accounts receivable. Therefore, as a cumulative impact to lower profits, we also experience lower operating credit availability. While not cash, it is understood as operating credit where cash is depleted entirely.

3. High Delivery-to-Cash Days - Poor management and oversight of delivery to cash processes. Managing the time between delivery to bill and bill to collection is often undervalued. 

Lower rates and volumes due to market downturns affect profits and accounts receivable balances. These sources of cash generation are largely out of our control in these markets. What is controllable are processes that determine the time between load delivery and cash collection.

How to understand the value of improving Delivery-to-Cash

If there is an average $6,000,000 in accounts receivable and unbilled revenue that takes 60 days from order completion to collection, reducing just one day is worth $100,000 in cash ($6,000,000 / 60 = $100,000).

Where oversight has been loose, it’s not unrealistic to assume 15-day reduction or more. This translates to $1,500,000 in additional cash. 

To emphasize the impact, we can frame these improvements in terms of revenue.

For instance, a $1,500,000 increase in cash where a carrier has an average 3% operating margin is equivalent to the profit from $50,000,000 in new revenue in a single year ($1,500,000 / 0.03 = $50,000,000).

This cash improvement also increases profitability by reducing interest expense and by unlocking capital for ROI-generating projects. 

Projects like investing in technology that improves delivery to cash visibility or other operational enhancements.

During market downturns, many decide there is no money to spend on projects like this. Those who calculate their decisions with the use of data, understand that investments are essentially where the money comes from. The latter statement underscores the basic premise of business success. Effectively investing resources to create greater value while reducing risk.

Now how do we get there?

Clear processes and oversight are essential to a strong cash position. 

Here are two high-impact practices that can generate significant value:

1.  Closely manage the steps from load completion to billing.

Once a load is complete, the time to bill clock starts. Set clear expectations, and ensure systems support fast, accurate billing.

Every step from scanning BOLs to completing loads in the TMS to sending invoices matters. Delays anywhere will extend payment timelines and reduce cash for operations.

For oversight, track:

• Lead measures: Completed loads not billed

• Lag measures: Days to bill

2. Closely manage the process from billing to collection.

Once the customer receives the invoice, the collection clock begins. The same urgency applies. 

Assign a responsible owner with effective reporting tools to actively manage collections. This requires daily effort and support from operations, especially from team members who maintain relationships with shippers.

For oversight, track:

• Lead measures: Invoices due

• Lag measures: Days to pay

With the right reporting, a small team can drive outsized results, generating millions in added liquidity. These reporting tools cost a fraction of the benefit they bring when properly woven into processes.

Today’s capabilities enable real-time visibility into these metrics by division, load, driver manager, or even driver. Even where AI is in play to automate invoicing or complete loads, human interactions and system exceptions within these processes need to be managed well.

In conclusion: 

Ensure your company is maximizing the return on its existing revenue-generating activity before investing in harder-to-reach gains. Especially in this area.

In a thin-margin industry like trucking, the speed of cash matters. If a dollar placed into your business turns into just $1.03 coming out, make sure it does so as quickly as possible.