Chesapeake Bank Cash Flow Program

What’s a small carrier do when all of the incoming checks are “in the mail” and the bill collector is on the phone or at the door, or heaven forbid, wandering the truck stop tarmac with a repo driver?

The obvious solution is to manage the books a little better, but there are times that even smartly run businesses will face a cash crunch. The trick is not to be caught by surprise—to plan rather than panic.

And that’s where Cash Flow, a line of credit offered by the Chesapeake Bay can come in handy, according to Kevin Wood, a sales officer for the bank.

But what he’s really marketing, he says, is “peace of mind”.

While Cash Flow might initially present itself similarly to factoring services—used in the invoice-intensive shipping industry for years—Wood explains there are important differences.

Where factoring often means handing over all of a carrier’s accounts receivable in exchange for discounted ready cash, Cash Flow is based on a banking model of credit—and includes bank regulatory and reporting assurances.

The Virginia bank has had a number of trucking and logistics customers in the program over the years, Wood explained. He said Cash Flow is a “great fit” for transportation companies not only because of the “cash gap”, or the typical industry billing lag, but because it can be used to exploit some efficiencies of doing a cash business on the expense side.

The program also features flexibility and case management options not found in most factoring arrangements, Wood contends. Because the customer is still in charge of the actual collection process—the payment is simply sent to a bank controlled post office box—the transactions are seamless.

As an example of transportation-oriented business that has used the program effectively, Wood explains that one customer—a moving company—has a seasonal business that will invariably see a couple of slow months during the year. The company uses the Cash Flow line of credit to keep up with payroll rather than reduce staff during the off season.

When asked why more didn’t offer similar programs, Wood said banking regulators typically labeled such loans as high-risk because of their “non-asset” nature, and that most banks are simply more comfortable handling routine home mortgages.

He also noted that Chesapeake Bank has favored business with smaller companies, cultivating a clientele with sales in the $1 million to $3 million range—a market segment often overlooked by banks that prefer lending big.

“Over the years, we’ve figured out how to do it, and we’ve just slowly grown the program,” Wood said, adding that the program has featured as many as 75 customers at a time, with a life cycle of three or four years.

“The best fits are companies in growth mode,” Wood said—meaning experienced outfits who know how to run a profitable business but who are “taking advantage of the marketplace” by expanding their fleets or improving equipment.

Carriers should use good business sense when making any such financial decisions, of course. In an ideal world, that means having sufficient cash reserves to cover the cash shortage.

Tom Weakly, director of operations for the Owner-Operator Independent Drivers Association (OOIDA) Foundation, said his organization recommends a 60 to 90 day cushion of operating funds, based on the typical billing cycle.

Similarly, the organization, “doesn’t encourage” borrowing against receivables, or selling them at a discount, because “it helps put you further in the hole,” Weakly said. “At the same time, we recognize that in some cases it may be the only way to get money flowing.”

Truckers who are just getting started with their own authority often face a “pretty dramatic change,” Weakly said, when they find out that the payday for a particular load doesn’t come automatically to a driver who is now his own boss.

To that end, Weakly and the association suggest truckers do their research when it comes to any sort of business deal.