In the transport industry, whether you are a one-truck owner-operator or a national freight company, one of the chief issues is waiting 30 to 60 days, or longer, for clients to pay.

While you wait for payment, the business has often massive fuel and maintenance bills, staff wages and seasonal demands to contend with, all which can have a huge impact on how much working capital is available to keep things motoring along.

The latest Scottish Pacific SME Growth Index, which polls more than 1200 SME owners around Australia, including a representative number from the transport & logistics sector, found that the level of concern small business has around cash flow is increasing.

Sixty percent of owners and managers of businesses that were growing indicated that cashflow is a barrier to their growth.

Even more owners named access to, and conditions of, credit as the biggest growth barriers.

With banks tightening lending criteria for the small business sector, those transport businesses who have been relying on or seeking a bank overdraft may do well to look at alternative options. Options include moving beyond property secured finance, which can limit the funding a business requires and could put the family home at risk if the house is tied up in business finances.

Strong cash flow management is crucial, and this philosophy is at the heart of the invoice finance funding solution.

When property secured finance becomes too limiting

Invoice finance is a line of credit linked to and secured by the outstanding accounts receivable, for any business that supplies products or services to other businesses on standard trade credit terms of up to 90 days.

Invoice finance does not require real estate security, which effectively quarantines your business borrowing and protects your personal assets from risk because it is secured against business receivables.

A significant portion of operators in the transport & logistics sector already utilise smart funding options that smooth out seasonal highs and lows, ensure there’s money at hand to pay staff and suppliers, and allow management breathing space from dealing with business finance red tape.

For Scottish Pacific, transport & logistics is the biggest industry sector that we fund.

Businesses can draw down up to 80 percent against the value of what they are owed. This provides an up-front cash injection rather than the stressful typical wait for access to the funds.

Many in the transport business hear about the benefits of using invoice finance from their fellow operators – or from their suppliers, who are keen to be paid on time and understand that invoice finance makes this possible.

This was the case for one Scottish Pacific transport client, a family business employing 30 staff and operating across the eastern seaboard, whose supplier tipped them off that many of their other transport clients were using invoice finance.

“When we started almost two decades ago, we self-funded by mortgaging our homes. As the business grew, this funding option became too difficult – and too limiting,” the owner says.

“Invoice finance has made a huge difference to us. As our business grows, our facility grows with us – we don’t have to be constantly refinancing which would mean growing in spurts and starts, not continuously. Our funds go in seamlessly, and the money is chased for us.”

This allows clients to concentrate on keeping trucks on the road.

Move quickly to take on new business

If your property is pledged as collateral for a bank loan, many businesses find it hard to say yes to new opportunities as they cannot raise the extra finance.

This is not the case with invoice finance, which is easily scalable because the size of the facility grows in line with the invoices being generated.

As another transport client says, “the size of our facility grows, guaranteed on the invoices. If an opportunity comes along we can grab it quickly.

“We don’t have to wait for approval to grow, so we don’t lose potential new opportunities while we are waiting to hear whether we can fund them.”

While this transport client is thinking growth, for other operators the current market is incredibly tough, with a flat economy and wages and fuel costs eating into already thin margins.

One client, the owner of a furniture removal business, was really feeling the pinch when his biggest client suddenly extended payment terms – from 7 days to 60!

In this case the client utilised Selective Invoice Finance, allowing a business to pick and choose which invoices they want funded (up to 10 invoices).

This works well for seasonal businesses or those with only occasional requirements for extra working capital who may not want to commit to a long-term finance facility.

For our removalist client, using selective invoice finance to fund just one major invoice a week allowed him to negotiate an increase in margin with his largest customer, which he used to partially offset the cost of the facility.

“The whole thing’s quick and easy. It’s as simple as emailing one invoice to Scottish Pacific, and this has provided our business with the security to pay the bills,” he says.

Finance that helps owners selling a transport business

For transport and logistics owners planning to pass on ownership to the next generation, or to sell the business, having the business finance tied to their real estate can create many challenges.

Unsecured funding can help in this instance, as it takes out of the equation how much security the incoming owner has, and the business will be able to access extra working capital to help smooth the transition period.