Finance for a Haulage Business
At Funding Solutions we have worked with a lot of haulage businesses. We understand the sector, the challenges you face and the financial solutions that can assist.
Challenges that haulage businesses face
Our clients usually face several issues:
- The high level of fixed costs associated with the capital expenditure of vehicles and lease or mortgage payments on a transport yard.
- Spiraling fuel costs that are rarely covered by fuel price escalators within the contracts with customers.
- Competition from European hauliers who can operate at lower rates and drive down prices.
- The challenge to find backloads to make the business more efficient.
- The cash flow issues that you face because fuel, wages, HP and lease payments, rent or mortgage payments must be paid on time whereas customer payment dates are not set in stone.
Our haulage clients nearly always raise these issues so we are well versed in assisting. Our challenge is to find the right solution for your business, ensuring that it is structured properly to solve your problem and meet your needs.
Funding solutions for haulage businesses
Invoice Factoring or Invoice Discounting – by factoring or invoice discounting your invoices you can remove the uncertainty that exists in your cash flow regarding when your customers will pay. Many of the payments you have to make are set in stone. Your fuel supplier will put you on stop if you don’t pay on time. Your employees may not arrive at work on a Monday if they have not been paid the previous week. Your ability to raise finance going forward can be impeded if you miss hire purchase or lease payments on your vehicles and obviously if this continues your vehicles could be repossessed.
By factoring or discounting your invoices you are able to access up to 90% of the cash tied up in your unpaid invoices. Factoring typically includes an outsourced credit control facility whereas an invoice discounting facility is typically finance only meaning you do the credit control. If you do not want you clients to be aware of your funding arrangements you may opt for confidential factoring or confidential invoice discounting.
Asset Finance or Vehicle Finance – if you are looking for finance to purchase new vehicles you should have a few options. Trucks are well liked by the asset finance sector as they are easy to value, easy to identify and easy to sell when required. This means if you are looking to start up, expand or replace older vehicles finance is typically available. So what are the typical finance options when purchasing new or second hand vehicles?
Hire purchase or Lease Purchase – probably the most common form of finance available. This is a facility secured directly against the vehicle which is paid off monthly. A balloon can be added at the end of the agreement which can reduce monthly repayments but this does increase the amount of interest that is paid over the life of the agreement. At the end of the agreement the vehicle will be yours. The main issue hauliers face when using hire purchase is that the VAT is typically payable in full at the start of the agreement, however VAT deferral schemes do exist with certain lenders.
Finance Lease – a finance lease operates in a similar manner to a hire purchase agreement. However, the VAT is spread over the terms of the agreement as VAT is paid on the monthly rentals. This can be a real cash flow advantage. However, you do need to be clear as to what happens to the asset at the end of the agreement. Typically you can continue to use the asset for a nominal peppercorn rental or some lenders have schemes whereby they are able to pass title of the vehicle to your business.
Asset refinance is used to generate cash against the assets already owned by your business. If you have vehicles with no or very little finance on them asset refinance can be a viable option to raise cash. The valuation that asset refinance companies typically look at is the ‘forced sale value’ and we can typically raise 70% of this. It does provide a cash injection but it is also important to remember that this then attracts a monthly repayment. We strongly recommend you run a cash flow forecast that considers not just the benefit of the cash injection in the short term but also the effect of the additional monthly repayment in the long term.