Tuesday 13rd Nov 2018
Transport can be tricky business. Overheads are high, costs subject to regular change, and it can sometimes take a long time to receive payment for your services. As a result, cash flow can be tight, which makes meeting those monthly costs difficult - and expanding even harder. This is why many companies in the industry, from haulage firms to couriers have to rely on various finance products for effective and profitable operations. In this article, we’re going to look at some of the best solutions available on the market.
Overdrafts have long been the funding solution of choice for businesses in all industries. They allow flexible dipping in and out depending on requirements, which could be ideal for companies that sometimes have issues balancing the money coming in and going out. Fuel and maintenance can be huge expenses for transport businesses, and they’re a prerequisite to getting the job done. But through careful overdraft use, transport businesses can ensure that they keep their fleet running, even before the money has come in. The only downside to overdrafts is that they can often be quite expensive - particularly if you need to go over the agreed limit. They’re also rarely large enough to fund an expansion, whether you need new premises, vehicles, equipment or staff.
Vehicle costs are naturally high, and it’s a real balancing act between having the right vans, cars and trucks for the job, and not spending inordinate amounts of money on either maintenance or brand new assets. Purchase an old vehicle outright, and it might be potentially unreliable and need regular repairs. Purchase a new one, and you’ve got depreciation to consider. That’s why various forms of leasing and other asset finance options are generally popular with transport companies that operate a fleet. In fact, many would argue that leasing, hire purchase, or other similar schemes are in fact the only way to go when it comes to operating vehicles. There are lots of brokers out there, so it’s a case of getting multiple quotes across different products, and seeing which results in the lowest overall cost.
We’ve briefly mentioned already the difficulty that many transport businesses have when it comes to getting paid. Unfortunately, logistics are often at the bottom of the food chain when it comes to invoices being settled, which means that the job is often complete weeks and sometimes even months before the money arrives in the account. This naturally makes running the business more difficult, and invoice finance products are specifically designed to combat this issue. While they’re lesser known than other funding options, they are nonetheless popular and fairly straightforward. Instead of waiting for the money to arrive in your account, an invoice finance provider will immediately pay you most of the value of an invoice as soon as you raise it. When the customer eventually settles the invoice, you get the final remaining value back, less a small fee for the facility. The idea is that you therefore never have to wait for payment; you can concentrate on carrying out the jobs that allow you to raise the invoice in the first place. This could be an ideal solution for businesses that run at a good profit, but could do with their invoices being realised quicker.
Straightforward loans are of course an option, and they’re not at all uncommon for transport companies that want to expand, and need an injection of cash to do so. They’re not a great idea for businesses that are struggling with cash flow, as repayments are likely to cause issues further down the line, but they are ideal if you can see a return on the injection of cash that outweighs the repayments. These days there are many, many options when it comes to loans - all major banks offer them, but the internet is also an interesting resource, with increasing numbers of alternate sources. Funding circles and angel investors are an option for those looking for something outside the traditional routes. With a little out-of-the-box thinking, you may be able to secure funds at a better rate or with better terms than the larger and more well-known banks. You’ll also be able to avoid having to use vehicles as collateral, and other potentially troublesome measures.