Tax Considerations for the Transportation Industry

The transportation industry works on thin margins, so every little tax break that owners and operators can get will help. For owners, consider making your drivers aware of the tax deductions they can receive just by driving. Helping your team make the most of their pay will be appreciated and will help you retain the best drivers. 

There are also decisions you can make as the owner of a transportation company to help your business get through tax time with strong cash flow. That is, if you are an independent business and not a PSB. Discover our tax tips for the 2021 tax year below.

Tax Deductions for Drivers

Those who are employees driving a truck for a company, or those who work in the transportation industry and do the transportation (like a crewmate on a ship or a stewardess on a plane) can deduct a large portion of their work expenses from their taxes. Those expenses may include:

• Up to 50% of meal expenses
• Up to 50% of hotel or lodging expenses
• Up to 50% of showering services (even if you're sleeping in your cab)
• Some of the tools or supplies that you purchase
• A portion of a business phone bill.

Part of your pandemic tax advice to employees could be a list of the relevant expenses they should be deducting.

Are you a PSB?

Drivers who are incorporated may not necessarily need to file as an incorporated business. According to the Canada Revenue Agency, those drivers who have incorporated, but who actually act as an employee of one business, must file as a Personal Services Business (PSB).

You may be a PSB/employee and not an independent business if you:

• Work for only one "client" company
• Do not own your truck or other tools
• Do not choose your own hauls or hours.

It is very important to get tax advice about whether you are a PSB or not as there are many tax implications to this nuance.

Tips for Owner-Operators

For owner-operators, tax season may be very stressful as a large bill comes due. Especially during the volatility of a pandemic year, you may not have been able to set aside the funds you need to cover your tax burden.

Factoring is a great solution for those who find their business struggles to afford tax time. With invoice factoring, you receive the money for your invoices as soon as you send them, from your factoring company, which handles getting the payments from your clients.

Some factoring companies may even set aside some of that money on your behalf, for taxes. J D Factors can assist you in this regard and if you would like us to start holding funds in trust to make sure you can a monthly tax payment, we are happy to do this in order to keep you on track.

Invoice factoring is a huge benefit at tax time because it allows you to have a much stronger cash flow, so you can afford to invest where you need and put aside funds too. It can be challenging for your cash flow to absorb quarterly estimated payments that you have to remit in advance. You can change that with factoring for SMEs. Reach out to J D Factors today to discuss if your transportation business is right for invoice factoring.

Cash Flow Tips in Times of Inflation

In Canada, inflation is creating some instability for businesses. Your suppliers may be set to raise prices, your clients or customers may be intent on spending less, and you may not be sure how to handle your own pricing scheme. One way to better ensure you weather an inflation storm is to focus on your cash flow. 

Between increased costs and lowered sales, some businesses will find themselves remarkably low on cash, potentially to the point of significantly impacting their ability to meet operating costs and stay afloat. How do you protect your working capital? Here are some cash flow tips specifically for times of high inflation.

1. Stop Extending Credit

Extending credit to your customers when inflation is minimal may make financial sense. However, as inflation rises steeply, the cost of that credit is amplified. What might have cost you $100 to deliver this month may cost you $120 to deliver the next. The money your customer is giving you a few months down the road is dramatically less valuable than the money you could get from them at the time you rendered your services. Of course, you’ll always have some delay between fulfillment and payment, but this delay is more disadvantageous during times of high inflation. Stop extending credit and create new policies or invest in new technologies that can encourage clients to pay you as quickly as possible.

In addition, you also should consider the possibility that your clients will be overwhelmed by inflation themselves and may not be able to pay you. Avoid bad debt and stress on your business by denying credit moving forward.

2. Increase Inventory - Wisely

Your supplies and inventory cost less today than they will tomorrow. Where your supplies or goods are shelf stable, you may consider purchasing and storing more, especially if you expect inflation to continue to rise. It is most wise to do this for core products or supplies that you are sure you will be able to sell. Stocking up on products that may decline in demand can leave you with inventory you can’t sell and further undermine the stability of your business. Stocking up on solid inventory can be a hit to your cash flow now but can make it much healthier down the road.

3. Understand the Risks of Loans

When you’re struggling to keep your cash flow healthy, a loan may seem like a good option. And, it can be, but the value of a loan is diminished during times of high inflation. By and large, loan rates increase during periods of inflation. If you have fixed rates for any loans or lines of credit you have then you don’t have to rush to pay them off. However, taking on new or having variable rate loans can be detrimental to your business.

4. Explore Invoice Factoring Options

Invoice factoring is a wiser way to achieve a healthier cash flow. In this arrangement, you send your invoices to a factoring company which pays them immediately, and then secures payment from your clients or customers. You get the benefit of your cash right away, which is essential as any delay in time means the value of your money is reduced. Your factoring company can even shield you from bad debt in what is known as non-recourse factoring, which is highly beneficial in times of high inflation. Whether you're looking for cash to increase inventory, hire, or otherwise invest in your business, factoring is an option worth considering.

Reach out to J D Factors to discuss how invoice factoring can help your business have healthier cash flow.

 

Invoice Factoring for Fleets: How to Grow in the Transportation Industry

The transportation industry can be tough, even in times of great demand. There are so many variables, a large financial commitment for growth, and changing economic conditions to throw a wrench in the best laid growth plans. One of the top things you can do to make your fleet more successful is to use factoring for at least some of your invoices. If this comes as a surprise to you, you’ll be interested in the data from RigDig Business Intelligence, which shows that since 2017, and especially during the Covid-19 pandemic, fleets that use at least some factoring have been outpacing those that don’t. 

Here’s the data, and why we think invoice factoring plays such a pivotal role in supporting the transportation industry specifically.

Fleet Growth Over Time

From 2016 to 2020, the size of fleets that use some form of invoice factoring has grown by 90%. In the same time period, the size of fleets that do not use any factoring has only grown by 30%. This is on average, so individual companies will have grown more or less depending on their circumstances. Still, the overall impact of factoring is clear. Transport companies that use at least some invoice factoring can better leverage opportunities to grow.

Why Is Invoice Factoring Successful?

Transportation is one of the industries that can benefit from invoice factoring the most. You have small margins and very long lead times. Potentially, your clients may take 30 or even 90 days to pay you, and that is after the delivery is completed.

When you’re trying to complete a new order, you may need to make investments and then wait for the cash to reach your pocket for even six months from the time you first wrote an estimate. In the meantime, you need fuel, payroll, and the cash to cover your other operating expenses. Putting business from more reliable customers on hold to handle large new accounts can jeopardize the stability of your business overall.

With all of these challenges to growth, and even day-to-day stability, invoice factoring is an excellent solution. After the delivery is complete, you send out your invoice to a factoring company like J D Factors. We pay you within 24 hours, meaning that you immediately have the cash to cover expenses incurred in the delivery, and keep investing for the next ones. That cuts you down from 90 days to one and keeps your business running smoothly.

Invoice factoring gives you better cash flow, which means that you can take advantage of opportunities that pop up, whether it’s a new fuel card, an order from a new client, or making new investments in quality trucks.

Cash flow isn’t the only benefit. Your factoring company will deal with invoicing your client and receiving payment. That means you spend no time chasing accounts receivables, reminding people about payments, or sending out ignored emails and calls. In fact, with non-recourse factoring, you are protected further against clients who don't pay because of credit issues, stop answering your calls, continuously break promises, or even file formal bankruptcy or bankruptcy protection. You reduce your burden of bad debt and have a significantly more stable business. Looking for an advantage this year? Discuss invoice factoring options for your transportation company with the team at J D Factors.

Negotiating Terms? Avoid These 4 Common Mistakes

The biggest mistake a small business owner can make when they are working with a bank is to think that the terms the bank presents are non-negotiable. The truth is that you can and should ask for a better interest rate or other more favorable credit terms. However, small business owners who are not used to negotiating these important financial arrangements often make mistakes. 

Here are the common mistakes you need to avoid in order to get the best terms when negotiating credit with a bank.  

1. Avoid Being Intimidated 

It can feel daunting to negotiate with such a large organization, and one that has so much power over the future of your business. But remember that there is more than one bank out there and the others want your business too. There is no reason to be intimidated by the bank or the people you speak to there. The person negotiating for the bank is not all-powerful and is a person, just like you.

2. Do Your Homework

Why do you deserve better terms? Just wanting them will not be a compelling enough reason. You should demonstrate the reasons that your business is more likely than average to pay back your loans or to be a good customer to the bank over the long term. Arrive to the meeting aware of all the information that may be important to bring up. Discuss your credit rating, the future prospects of your business, or the kind of investment you’re making with the credit the bank is offering you, if any of those facts would be compelling.

Whatever your argument, preparing it ahead of time will give you the opportunity to pull the numbers and make it more appealing to the bank’s representative. 

3. Listen to Build Trust

The bank will have its own reasons that the initial terms they offered you are acceptable. By listening to the representative’s counter arguments and perspective you gain valuable insight about which terms the bank might be more open to negotiating and what they would need to see in order to offer you better terms where they currently cannot.

Perhaps the bank is inflexible on the interest rate, but more flexible on monthly payments or overall credit amount. By listening you can find opportunities. You’ll also build more trust with the bank’s representative, who will realize that you understand their perspective and will therefore be more willing to work with you.

4. Know What's Good Enough

It’s rare in any negotiation to get precisely what you ask for. You’ll walk into the negotiation knowing what you want, but you should also know where to settle. What terms would be good enough to get your business the credit it needs? When you know the bare minimum you’d be willing to accept you will know when you should walk away and pursue other options.  

If the negotiation doesn't go well, keep in mind that you have other financial options available to your business. Invoicing factoring is a great option, particularly if your negotiations with the bank don’t fare well. Reach out to J D Factors to learn more about this alternative option.

6 Ways to Optimize Your Budget as Transportation Costs Rise

Freight costs are rising across the board, whether you are using trucking, rail, ocean shipping, air cargo or another option. Not only is shipping less reliable than it has been in the past, but the strapped supply chain is also asking for more in the way of rates and fees. 

If you’re facing increased freight costs then it is natural to turn to your budget to see how you can make it work. Here are our tips for optimizing your budget to better handle these costs and keep your margins stable.

Volume-Based Discounts

Shipping more may seem like a counter-intuitive solution to your problem, but it can work. Many carriers offer volume-based discounts. In fact, some will even offer free shipping if you’re over a certain minimum order. If you can ship more to get a better deal, it is worth looking into it. Note that you don’t have to necessarily have a larger inventory for this. If you work with multiple shippers, moving all of your product or materials to one may make it more affordable overall.

Focus Your Products

When volume won’t work, narrowing what you ship will. Many retailers are focusing on cutting out products that do not perform as well as their core products. Sometimes you may even need to consider whether your core products are performing as well as they should. Whatever is selling well, make it your priority to have it on the shelves or in stock. Cut whatever isn’t performing well (doesn’t sell more than five units per month or isn’t carried in at least half of the markets).

Introduce new products in this market very carefully. Track your data so that you know sooner if a new product is performing well enough to merit its shipping costs.

Self-Distribute

When you don’t have something in stock that a customer needs, you may lose them entirely to a place that does. That’s why we’re seeing some retailers end up buying their stock at the local Costco, just to deal with shipping instabilities. When you can self-distribute as a temporary measure, it can make sense to keep your customer base loyal.

New Suppliers

Finding local suppliers for your materials may reduce your shipping costs substantially. Even if you have previously looked into local options, you may find that their prices are now more competitive, and that their delivery will be more reliable in comparison to our current freight woes.

Increase Your Prices

Sometimes you should not absorb increased costs. If your shipping rates have raised substantially, this may be one of those costs you simply should pass onto your customer. However, you should focus on doing this with caution. Driving away customers with sudden spikes in prices is not wise.

Dispute Resolution

It is costly to have delayed and missed shipments. One way you can give your budget a break is to have a dispute resolution method worked out with your shipper, in your contact with them.

Do you need to make your business and budget more flexible? J D Factors can help with invoice factoring services. Find out more today.

Invoicing Innovations for SMEs

Are you looking to streamline your invoicing? Handling invoicing by hand is time-consuming and occasionally creates costly errors. Every year, new technologies and software are released to help SMEs with limited resources handle their invoicing more efficiently, avoid miscommunications, avoid accounting errors, and spend less time on paperwork. 

Here are a few we think you should know about:

Cloud-Based Invoicing

With the cloud, you can always have quick access to any invoices that you need to look over, even using an app on your phone to do so. You can get real-time updates about the status of your accounts receivables, too. Cloud-based invoicing eliminates the needs to have paper invoices as well as the cost to print, send and store them. It also makes sharing invoices across team members simple.

Online Payments

If you deliver invoices in person or send them through mail, online payments will be a significant upgrade for you. Online payments make things more convenient for your customer which can encourage them to pay you faster. With online payments, when your software detects that the payment has been made, your whole accounting system can be automatically updated.

Online payments are also ideal for international clients, especially because they are available 24/7.

Automation  

Many aspects of invoicing can be immediately performed by your software through automation. After your client’s appointment is completed, software can automatically send out their invoice without your input. Software can automatically remind clients about unpaid invoices, automatically update your accounting team about partial payments, and do so many more actions that otherwise you’d have to pay someone to perform.

Artificial Intelligence

You can take your invoicing to the next level with artificial intelligence. Some software offers predictive intelligence that can help you spot errors with invoicing, refine your estimating and billing processes, and even generate more revenue. Some artificial intelligence even offers tools to help you reconcile accounts, get payments from clients who are late, and encourage early or on-time payments. You may be surprised at all of the features invoicing software can offer through artificial intelligence.

Other Features

When you invest in invoicing software that offers any of the above, you will often also get access to other features that help your business be more successful. You may be able to track project completion, calculate customer lifetime value, see when your average customer pays and get better, up-to-date information about your cashflow. Chances are, invoicing software will help you see just how critical managing your invoices and accounts receivable is to the overall success of your enterprise.

Choose Invoice Factoring

Of course, you don’t have to do all of your invoicing yourself. At J D Factors, we can handle the more challenging aspects of managing your accounts receivables. You send your invoice to us instead of your client, we pay you within 24 hours, and we handle all of the further contact with your client. We follow-up, send reminders, collect payment, and even handle non-payment and bad debt. Reach out to us at J D Factors to make your invoicing simpler and more reliable than ever.

5 Easy Fixes for Common Payroll Errors

For most businesses, payroll is a huge expense. While businesses in the service industry generally have higher payroll costs, it's fair to assume that 20% to 30% of your gross revenue will be spent on payroll. It's important to be precise and accurate whenever you're dealing with such a huge chunk of money. Consequences for late payments, missed deductions, and more can add up and eat into your business' bottom line. Here are some common payroll errors and easy fixes to help you get the most out of your payroll.

1.      Remit Your Payroll on Time

Missing deadlines for payroll remittances to the CRA is a costly mistake that's commonly made. The CRA can fine you 10% of the total of the late remittance for a first offense and 20% for a second offense in the same calendar year. The later you are, the more interest you are charged.

Although it's costly, it's easy for a business to lose track or forget to file payroll remittances on time. Outsourcing payroll is one simple way to avoid these late penalties.

2.      Know if a Person is an Employee or a Contractor

You can get into trouble if you pay employees as if they are contractors, especially if you're audited by the CRA and they determine that the arrangement is more like an employer/employee relationship. If you classify the relationship incorrectly, you could end up being liable for the CPP and EI owing on whatever amount was paid to the person. Visit the CRA's Employers' Guide to learn more and ensure you're classifying the people who do work for you correctly.

3.      Deduct CPP, EI and Income Tax from Overtime Pay

If you're paying employees overtime, you still have to deduct CPP, EI and income tax from that overtime pay. The way you should pay overtime depends on the pay period. Whether the amount owed is paid in the same pay period it was earned or paid in a later pay period will depend on how you pay it and what deductions you make. Talk to your accountant of visit the CRA's Employers' Guide to ensure you're paying overtime correctly.

4.      Pay CPP on Commission

In some situations, you may pay an employee commission after they sell something, which can happen irregularly. In this case, to determine the maximum CPP contribution amount, you have to prorate the annual basic exemption amount for CPP for the number of days in the year between the commission payments. Otherwise, you may pay CPP incorrectly and be stuck making up the difference later on.

5.      Ensure You've Got the Cash for Payroll

Let's face it. Payroll can put a huge strain on your cash flow. Talk to J D Factors about invoice factoring, which is a great solution to ensure you always have the cash available to pay your people on time.

Correcting these costly payroll errors will help you avoid having to pay more than you need to. With your payroll under control your cash flow will be too, which is a critical part of a strong, healthy and growing business. Give the team at J D Factors a call for more cash flow tips!