Accounting for Truckers (#336)
/Most of the accounting for a trucking operation is fairly standard, so I’ll skip that and just focus on the unusual parts. Of which the most unusual is the financing arrangements. It can take quite a while for a trucker to get paid – usually in the range of 30 to 90 days from the billing date. This is a big problem, because most trucking expenses, such as compensation and fuel, have to be paid within a week or two. This results in a massive working capital problem, for which the solution is freight factoring.
Freight Factoring
Factoring is the sale of your receivables in order to get immediate cash. There’s an entire industry of factoring companies that just service truckers, and what they offer is called freight factoring, and it allows truckers to get almost-immediate cash after they bill a client. In exchange for a factoring fee, of course. So, one accounting task is recording the sale of receivables.
Compensation
Another accounting issue is compensation. A trucking firm either pays contractors who use their own trucks, or it maintains its own staff of drivers, or it uses a mix of the two. This means the accountant has to record contractor billings and pay them through the accounts payable system, or track driver hours and pay them through the payroll system – depending on which type of driver arrangement they have. In the latter case, this also means that drivers may be on the road when you need to collect their hours worked information, so there needs to be a system for collecting the hours.
Fuel Cards
The next accounting issue is fuel cards. These cards are used to buy fuel at wholesale rates. They’re not really credit cards. Instead, fuel charges are compiled into an invoice, and payments are automatically deducted from the trucker’s bank account, usually once a week. So, the accountant needs to record the fuel invoice, and verify that the same amount is deducted from the company’s bank account.
Driving School Expenditures
Here's another issue, which is driving school expenditures. Some trucking firms offer to pay the fees for driving school for drivers who are just getting into the trucking business. So, do you charge these expenditures off to expense right away, or write them off over time? That depends on the arrangement with the drivers. If you can force a driver to pay back these fees if he leaves the company early, then you might have grounds for recording the fees as a prepaid expense, and then write off a portion of it each month.
Trucking Permits and Fees
And then we have permits and fees. Lots of permits and fees. The accountant needs to record the annual Department of Transportation fee, which is paid to the state government in which the trucker is located. And then there’s the international registration plan tag, which is a license plate that’s issued by the state’s Department of Transportation. This tag allows the firm’s trucks to operate across state lines. And on top of that, there’s the heavy highway vehicle use tax, which has to be paid to the federal government when you have a vehicle that weighs more than 55,000 pounds. That tax pays for highway infrastructure and road maintenance. But – not done yet – there are also oversize and overweight vehicle permits. All of these permits and fees can really add up, so you might consider recording them in separate accounts, to keep better track of where the money is going.
Driver Per Diem Payments
Another fairly common accounting issue is making per diem payments to drivers. This happens when drivers are expected to be on the road for an extended period of time, so the firm pays them a daily stipend that’s supposed to cover their meals and lodging. Of course, some of them sleep in the truck, if it has a sleeper compartment, in which case the per diem only covers meals.
Truck Depreciation
As you might expect, the trucking business involves very large investments in trucks, so the depreciation of fixed assets is a major issue. Depreciation calculations always include salvage value, since trucks are sold off after a certain amount of time. Depreciation expense is a large number on the income statement, so these calculations have to be right.
Insurance Expenses
And then there’s insurance. When your entire business involves driving large and heavy vehicles that can tip over and cause a lot of damage, of course there’s going to be insurance. There’s general liability insurance, and cargo insurance, and commercial property insurance. And other types of insurance riders, depending on just how hazardous the cargos are. For these reasons, the insurance expense in the trucking business tends to be a lot higher than in other industries.
Accounting Reports
Which brings me to the most important activity for the accountant, which is reporting. Trucking is a miserable business. Margins are low, and cash flows are worse. So, bankruptcy prevention is a pretty big deal. This means knowing the breakeven point of the business, so they can focus on keeping sales above that level. It also means tracking the cost of every job, to see if the business is generating a profit. This means tracking fuel, per diems, compensation, tolls, and parking charges for every single job. If you don’t do this, then management will not understand where profits and losses are coming from, and the business will probably fail.
This also means reporting on the cost of deadhead miles, which is the miles driven without a load. There’s no revenue associated with these miles, so it’s pure cost. The accountant is not responsible for reducing the number of these miles, but management needs to understand their cost, so routes can be restructured to reduce deadhead miles.
And there are lots of metrics to compile. The accountant can report on things like revenue per mile, cost per mile, and profit per mile. There’s also fuel cost per gallon, as well as days sales outstanding, which is driven by the quality of the company’s customers and how well the accountant is collecting overdue invoices.
In short, this is a tough industry, so the accountant has to focus on every possible reporting option that highlights where profits and losses are being generated. The general ledger has to be structured with the same goal in mind, so that information is summarized to support the reporting function. To be blunt, if the accountant does not provide good reporting, the company will not be around for long.