Updated 2nd of August 2023

The transportation sector is of central importance to the Australian economy and plays a vital role in just about every sector. However, there are some unique challenges that this industry faces.

Whether it’s from tight margins, rising costs of fuel or even extended payment terms (up to 60 days for larger companies) on outstanding invoices, transportation companies can find themselves stretched when it comes to working capital. 

Ina transportation business, unreliable cash flow can disrupt day to day operations and inhibit growth. Invoice Finance is one of the most common working capital solutions turned to by those in the industry. 

In this article, we’ll take a deep dive into its benefits and outline how it works.

The Transportation Industry – Understanding its Significance

The transportation industry forms the backbone of many sectors in our economy. The extensive network of roads and railways, seaports and airports all allow the smooth movement of materials, goods and other assets across our wide and large nation.

Having a reliable and profitable transportation industry ensures that products reach their destination on time and efficiently, thus fuelling the ability of other businesses and industries to continue their respective operations.

Unlike many industries, transportation companies often find their margins further constrained by various external forces and factors, fuel prices being one of the more significant. When the economy tightens and prices rise across the board, it is not uncommon for companies in the transportation industry to find themselves struggling for reliable, accessible working capital despite the high demand for their services.

Without an effective and affordable financial solution, this can have a serious and detrimental knock-on effect throughout the rest of the economy. 

Transportation Invoice Finance – An Introduction

Transportation Invoice Finance, also known as freight or transport factoring, is a financial funding facility that allows companies to bridge the cash gap between raising and issuing an invoice to a customer and actually receiving payment.

Simply put, a company can use their outstanding accounts receivable as collateral for funding in the form of cash advances for up to 85% of the total value of the invoices.

Accessible within 24 hours, this fast funding means that transportation businesses can pay their drivers, cover the rising costs of fuel, reinvest in further growth quicker, and respond to the needs of their customer base more promptly.

The remaining 15% of the value of the invoices is paid once the invoices are settled by the customers, less any fees due to the financial provider.

While transportation companies could theoretically turn to conventional bank loans to help assuage cash flow issues, the red-tape, slow moving nature and eligibility criteria of this traditional funding facility makes Invoice Finance the better option for many businesses.

Invoice Finance – Do Transport Businesses Need It?

Did you know that the late-payment average for the transport industry increased by 500% just between August 2019 and August 2020?

If customers and clients all settled their outstanding invoices within days of receiving the statement, transport businesses (as well as all companies) would be better able to manage their cash flow and cover ongoing operations. However, the net terms (at least 30 days in most instances) means there is a rather significant delay.

Truck drivers, fuel prices and vehicle insurance, maintenance and replacements do not wait for invoices to be settled. As a transport company of any size, this can cause significant cash flow issues. You may struggle to keep your trucks on the road, your drivers paid or your new contracts services.

The COVID-19 pandemic proved how important the transportation industry is to the Australian economy and disruptions to its operations have far-reaching and often devastating effects.

The Challenge of Navigating Cash Flow

Cash flow management is important in the transport sector for obvious reasons. Delivering goods and materials across country or even from region to region already puts a strain on working capital access as there is an inherent delay in the solicitation of services and the end delivery of those services. In other words, transporting goods takes time.

Couple this with extended payment terms and there can be serious cash flow gaps. Some larger transportation companies may be able to weather a storm of rising fuel costs, vehicle breakdowns and driver wages, but for many the nature of the transportation industry means they need to seek financing solutions.

Transportation Invoice Finance is one of the best ways to achieve fast, reliable funds without having to take on debt. In that respect, this financial facility can be vital in ensuring the cash flow gap is bridged.

Transportation Invoice Finance – How Does It Work?

Transport Invoice Finance is a flexible financial solution. In other words, it can be customised to meet the needs of your specific trucking company. 

There are two main types of transportation Invoice Finance. 

1. Invoice Factoring

Invoice factoring, also known as transportation factoring and Debt Factoring, is a form of Invoice Finance where your outstanding invoices is used as collateral for receiving fast funding. 

First, you submit the invoice(s) for factoring and then you receive up to 85% of the invoice(s)’ value as an upfront cash advance. The responsibility for collecting payments from owing customers is passed on to the factoring company, i.e., the provider of the loan.

The balance remaining is provided once the invoices are settled, less due fees.

2. Invoice Discounting

On the other hand, Invoice Discounting works similarly but with a key difference. Even after you have submitted your invoice(s) for financing, you retain control of accounts receivable and collection. This means you are still responsible for collecting the outstanding invoice.

The benefit of discounting as opposed to factoring is the greater control retained and the greater ability to maintain confidentiality regarding the funding arrangement. 

However, both transport factoring and discounting enable you to unlock the value in your accounts receivables and put it to work to grow your business.

You can learn more about the types of financing in our guide, Invoice Discounting vs Factoring?.

Transportation Invoice Finance – The Benefits

There are four main advantages to turning to transportation Invoice Finance as a way to ensure effective cash flow management.

1. Cover Cash Flow Gaps

As explained above, transportation businesses are more likely to experience cash flow gaps. The gap between inflows and outflows of working capital can be prohibitive for a business. Invoice Finance helps to resolve this issue by smoothing over cash flow and ensuring a reliable and steady stream of access to funds.

2. Take on New Opportunities

Being fast and flexible, this financial solution allows businesses to quickly capitalise on new opportunities by unlocking value tied up in accounts receivable. Whether it’s employing more drivers, upgrading vehicles or just taking advantage of lower fuel prices, Invoice Finance enables debt-free access to working capital. 

3. Safer and Simpler

Due to the fact that the outstanding invoices constitute the security needed, there is less risk involved in an Invoice Funding facility. Combine that with the more straightword, less paperwork-ridden nature of this funding solution compared to traditional business loans, and Invoice Finance is safer and simpler for transportation businesses. 

4. Maintain Control

There are many options when it comes to this financial solution depending on your needs and circumstances. Maintaining control whilst enjoying predictable cash flow can be a huge asset for any business, not least for those in the transportation business.

 Some of the options when it comes to Invoice Finance include:

  • Short-term facilities or long-term facilities. 
  • No lock-in contracts.
  • Selective Invoice Finance – where you can choose to fund a single invoice, a single customer, or more.
  • Factoring or discounting.

Read our case study to see how invoice and Equipment Finance helped the NSW-based transport business Computertrans grow from an owner-operator small business into an industry leader. 

Transportation Financing – How Can a Business Qualify?

The approval process for transportation Invoice Finance is quicker, easier and simpler than financial facilities offered by banks. Even smaller businesses with less robust credit scores or trading histories can qualify for Invoice Finance. This is not the case with traditional business loans.

To find out if your business qualifies, we recommend getting in touch with the ScotPac team today. We’ll provide you with a free high-level consultation to discuss whether Invoice Finance is right for your needs and whether your business would be eligible.

Equipment Finance

Within the transportation industry, many companies look towards Equipment Finance for direct funding investments into new vehicles. If you’re expanding your fleet or just replacing outdated models, this may be the right solution for you.

With funding up to 100% of the cost, repayments spread over generously extended periods, and customisable facilities, Equipment Finance can be a real help to transportation companies. Plus, you may even be able to combine it with Invoice Finance!

ScotPac – How We Help Transport Companies

Here at ScotPac, our team knows firsthand what sort of challenges the transportation sector faces. We know what’s needed for growth and success, and we’ve helped transport firms of all sizes access the funding they need to really thrive. 

Invoice Finance can be designed to address the specific challenges faced by a specific business and ensure accelerated payment in a sustainable way. By viewing our clients as long-term partners, we’re committed to helping realise funding solutions that don’t require the taking on of new debt and don’t compromise cash flow, financial security or ongoing business operations.

Our working capital solutions work as the fuel to help rocket transportation companies to success based on the specific requirements and preferences of each individual client we work with.

If your transportation business is feeling the pinch of rising fuel costs, extended payment terms or post-pandemic related disruption, give us a call on the number below or use our simple online enquiry form. A member of our transport and logistics lending specialist team will be in touch as soon as possible.