Financing the Haulage Industry
The haulage industry is an incredibly valuable part of the UK economy, being worth an estimated £124bn GVA. The sector is also the fifth biggest employer, with around 2.54 million people working within haulage and logistics. During the run up to Christmas 2021, there has been a lot of media commentary on the strains facing the industry, and so now is a good opportunity for SMEs within haulage to study the landscape and take a fresh look at their operations.
In this article, we’ll recap the challenges facing haulage, explore which external finance methods could help SMEs in this sector, and look at how that finance could be used.
What challenges do haulage businesses face?
The most pressing challenge facing the haulage industry in 2021 is driver shortages, with experts suggesting that the industry needs around 100,000 more active drivers to meet demand. There are a number of reasons for these shortages, including that:
- The COVID pandemic saw a large proportion of drivers returning to their countries of origin, and most have not yet returned.
- The sector has an ageing workforce, and many drivers have chosen to retire as a result of the pandemic stresses. Brexit has meant that it’s more difficult for UK businesses to entice HGV drivers from different countries to join the UK workforce. While temporary visas were brought in to help address this issue, only 20 of 300 applications had been approved as of Oct 2021.
- Many trainee drivers could not fully complete their apprenticeships due to a lack of testing in the pandemic year. Around 15,000 drivers successfully completed training, as opposed to 40,000 in the previous year.
This lack of drivers may well mean that haulage becomes a more competitive space, and so companies in this sector may need to find new ways to become competitive and edge out over the competition. For example, they could look to explore new methods of recruitment; raising wages and offering bonuses to ensure that they are able to continue offering their services.
Another way haulage businesses could become more competitive is to ensure they have strong finances that enable them to make short-term buying decisions quickly, and invest in future growth. One good way of strengthening finances could be to use external finance, such as a loan, to seize opportunities today.
Financing a haulage operation
To remain competitive, it’s important that businesses have the right type of finance in place. The vast majority of the UK’s haulage are SMEs, so it’s useful to know:
- What types of external finance could prove helpful.
- How best to leverage finance to gain advantages.
With regards to the former, it could be argued that cash flow is the biggest make-or-break factor for SMEs. With strong cash flow, haulage companies could look to steadily make incremental investments into their business that encourage long term growth.
Types of external finance for haulage companies
Invoice finance
One strong external financing option for bolstering cash flow is Invoice Financing. In an invoice financing model, the borrower can receive a cash advance from a lender that is worth up to 90% of their accounts receivable. The haulage industry is heavily invoice-reliant, with orders typically placed far in advance, and so fleet operators are no stranger to there being a delay between securing orders and actually having that cash in the bank to utilise.
This cash advance, then, could become a very attractive option. What’s more, having a strong cash flow really matters to fleet operators due to the nature of their business costs. With the maintenance of LGVs and HGVs often resulting in relatively small but frequent payments to garages, and fuel costs being a constant pressure point, the flexibility of a line-of-credit type of financing solution that you’d likely find in your typical invoice financing agreement could really help.
Asset Finance
Haulage itself is a largely asset-driven sector, with successful businesses often owning multiple lorries and premises – and potentially avoiding leasing costs by doing so. Due to this, one financing method that could be worth considering is asset financing.
In an asset financing arrangement, a high-value asset is used as security on a loan. Naturally, a secured loan agreement may come with a more competitive interest rate than its unsecured counterparts, and with many SMEs owning one or more vehicles, this type of financing could have mass appeal for hauliers.
How to use external finance within haulage
Having assessed the various financing options available in market and identified how to strengthen cash flow, it may help haulage businesses to get creative around how to leverage that finance for maximum impact.
In the competitive recruitment market, improving the visibility of current vacancies as much as possible could be worth considering. This could be achieved by promoting job posting through paid ads, working with external recruitment agencies, or paying for prime positioning on popular jobs boards.
Conversely, perhaps it’s a business’ offering to employees that could benefit from investment. Some ways of upgrading this could include:
- Raising wages.
- Offering a new range of benefits to employees; such as increased holidays.
- Or adopting a more flexible working model.
Long-term strategy
Beyond recruitment, many SMEs may also acknowledge the potential benefit in making an investment into long term, sustained growth. With COP26 taking place in early November, it’s highly likely that committing to new net-zero initiatives and designing roadmaps will be on the agenda for the UK government.
This could have a direct impact on haulage businesses. It’s possible that the blueprint for introducing a carbon tax will be agreed upon by participating countries, and that guidelines will be set out for electrifying UK fleets by 2050.
If confirmed, these changes could affect not only a business’ costs, but what type of employees and skills are needed within the team to make electrification possible. Considering, then, how well-prepared a haulage company is to tackle longer-term obstacles alongside short-term ones may help haulage SMEs position for success.
How could Rapid Cash help?
We’ve discussed how improving cash flow could really help UK haulage companies invest in growth, and how external finance may be a viable option for achieving this. Well, At Rapid Cash, we’ve developed an innovative invoice financing product which is designed to help make this possible.
Using our solution, eligible customers can receive a cash advance on their unpaid invoices that means not having to wait 30, 60, or 90 days to be paid. Our solution integrates with your accounting software before enabling you to choose which of your unpaid invoices you’d like to borrow against, giving you a flexible line of credit that could help you manage your costs.
If you’re interested in learning more about Rapid Cash, read about how our solution works.
Eligibility
To be eligible for Rapid Cash, businesses need to have been trading for a minimum of six months and have an annual turnover of at least £100,000. Businesses need to be a limited company or a limited liability partnership in England and Wales. Additionally, you need to invoice other businesses and use one of the following digital accounting software: Xero, Quickbooks, Sage 50, Kashflow, FreeAgent and NetSuite.
Security and guarantee required. Product fees may apply.
