How can a haulier boost its cashflow for the upcoming Christmas?

SBF BLOG: How can a haulier boost its cashflow for the upcoming Christmas?

The UK logistics industry is very important to the UK economy, being worth more than £75 billion, employing over 2 million people and is currently one of only a handful of sectors actually growing at present.

Despite this positive outlook, many haulage companies face major cashflow problems with the high price of fuel customers taking longer and longer to pay. Driver wages, HP commitments and vehicle repair bills can also stifle cashflow and the upfront cost of the upcoming Christmas period doesn't help matters at all.

In the current economic environment, the old adage ‘Sales is vanity, profit is sanity but cash is king’ is probably more appropriate now than at any other time.

Businesses don’t go bust because they make losses; they go bust because they run out of cash and so it is more essential than ever that owner-managers keep their eyes firmly on their cash position. Here's some advice on how to boost cashflow in the upcoming months.

How to boost cashflow

There are several ways to improve cashflow, with some being easier to implement than others:

1) Ensure customers pay on time
2) Offer early settlement discounts to main customers for prompt payment
3) Ask suppliers for extended terms

4) Increase bank facilities
5) Use an invoice finance provider to fund outstanding invoicing
6) Implement fuel escalators into service agreements to mitigate rising fuel prices


1) Ensure customers pay on time

One major problem for haulage companies is the perennial requirement of having pay wages, HP and fuel suppliers, whilst in turn waiting for cash from their own customers to come in.

These three elements are a large proportion of the costs and it is absolutely essential they are paid on time to keep the business running. This can cause a strain on any business, particularly one which is looking to grow and reach its full potential.

In an ideal world, all customers would pay as soon as the goods have been delivered and cashflow would not be a problem. Unfortunately, in today’s highly-competitive logistics market, it’s not that easy, with most customers demanding 30, 60 and even 90 day credit terms. It is therefore essential that the hauliers’ customers pay them on time for the service they have delivered.

Business owners should ensure they are on top of administration with effective credit control systems in place. They are only a good customer if they pay and business owners should not feel embarrassed in asking for payment.

The haulier is not there to bankroll their customers’ own cashflow. They have delivered the service, so it’s their money!

Top tips to ensure timely payments:

  • Implement stringent credit control procedures for chasing outstanding invoices including monthly statements and chasing letters.
  • Record all chasing activity and responses in a diary or log.
  • Ensure their payment terms are stated clearly on the invoice.
  • Ensure any necessary paper work required to prove the goods have been delivered is to hand should it be required and keep copies in case of dispute.
  • Consider using an invoice finance provider who can chase the invoices on their behalf, taking the emotion out of the situation. Maybe our very own My White Label solution might be of assistance?

2) Offer an early settlement discount to main customers for prompt payment

If the haulier needs some urgent cash to pay upcoming seasonal bills, why not consider offering an early payment discount.

Some large customers will be happy to take a 2.5% or 5% discount to pay the outstanding invoices early. This can be a quick way of getting in the cash.
However, there is the risk that the customer will take the discount by knocking it off the value of the outstanding invoice and then allow payment terms to gradually drift out over time.

Care also needs to be taken as, with profit margins having been squeezed in recent years, to give away such a discount could seriously erode any profit in a marginally costed job.

3) Ask suppliers for extended terms

The main issue with the haulage business model in general is the biggest costs in the cashflow often prove inflexible:

  • HP needs to be paid to keep possession of the vehicles
  • Fuel must be paid to keep the vehicles running
  • Wages need to be paid or there will be no drivers and no deliveries.

It can prove difficult in the current climate to renegotiate HP repayments over a longer time but it is worth enquiring. Fuel and wages are even more difficult, however there are other suppliers who may offer extended terms to retain or gain their business, such as tyre suppliers or maintenance engineers. It is worth spending a bit of time shopping around to see if there is a better deal out there for your company.

4) Increase bank facilities

Many haulage companies will have overdraft facilities in place already, so it is worth speaking to your bank early to see if this facility can be increased if required.

Unfortunately overdrafts can prove quite restrictive, as they are based on historic trading history and are not necessarily reflective of the level of business at the current time. A request for an increase may be more difficult in the current climate and could require more personal security.

It is essential to be fully prepared when meeting with your banker to give yourself the best possible chance of getting an increased limit. Ensure you produce a business plan with up-to-date financial information and projections justifying the request.

5) Use an invoice finance provider to fund outstanding invoicing

Cash can be released from outstanding invoices via an invoice finance provider. These alternative lenders will buy the outstanding invoices and advance as much as 90% within 24 hours. This takes the strain out of the cashflow and provides a much-needed boost to a business’s liquidity.
Where invoice finance wins hands down in comparison to a traditional banking overdraft is that:

  • It generates more cash than an overdraft – usually twice as much.
  • Less personal security is required so there’s no need to give a charge over the family home.
  • It is based on the sales the business creates, therefore grows with the business, meaning the business doesn’t have to keep going back to the bank with cap in hand.
  • It provides access to cash almost instantly upon raising the invoices for completed deliveries.
  • It isn’t based on historic balance sheet performance and is therefore suitable for businesses in turnaround or highly geared.

6) Implement fuel escalators into service agreements to mitigate rising fuel prices

Unfortunately the haulage industry has seen mounting fuel prices over the last few years which in many cases have been difficult to pass on to the end customers. It’s worth considering inserting fuel escalator clauses in any future service agreements to mitigate rising fuel costs. This at least allows the haulier to retain the profit margin in the job if prices continue to rise.

They should also regularly review ongoing customer relationships and ensure margins are acceptable. There is no point being a busy fool and making losses on a contract.


Summary

The logistics sector remains an essential part of UK PLC and, whilst more should be done to assist from the corridors of Whitehall, haulage companies need to do everything they can for themselves to ensure they boost their cashflow and remain driving down the road to success.

If you're the owner-manager of a haulier and are looking at ways to increase cashflow this coming Christmas period, why not give Skipton Business Finance a call on 01756 694933, drop us an email at info@skiptonbf.co.uk or browse our website for more information.