Finance for haulage and transport businesses

A haulier can be busy, profitable and still short of cash. The trucks are working, the invoices are going out, and the bank balance keeps falling. That's because most of your costs leave every week, while most of your income arrives 60 or 90 days after the job.

This guide covers what haulage and transport businesses borrow for, the finance that tends to fit each need, and what lenders look at. For the detail of financing the vehicles themselves, see our guide to van and HGV finance.

Why haulage gets squeezed

Think about a single job. Your driver is paid at the end of the week. The fuel goes on a fuel card, settled within days or weeks. Tolls, tyres and repairs are paid as they happen. Then you invoice the customer, who pays on their terms, often 60 days and sometimes 90.

Multiply that by every truck and every week, and the business is carrying two or three months of its own costs at any one time. The faster you grow, the bigger that gap gets, because each new contract adds weeks of costs before it brings in a penny.

So haulage finance is usually two jobs, not one. Asset finance pays for vehicles and trailers over their working life. Working capital finance covers the wait between doing the work and being paid for it.

Tractor units, rigids and vans

Most hauliers fund vehicles with hire purchase (HP), where you own the vehicle once the last payment is made, or a lease, where you rent it and never own it outright. Because the lender can take back and sell the vehicle if payments stop, this is usually easier to arrange than an unsecured loan of the same size. Deposits, balloon payments, VAT and tax are covered in van and HGV finance and hire purchase vs leasing.

Trailers

Trailers are fundable in the same ways, and lenders generally like them. Curtainsiders, box vans, flatbeds and skeletal trailers are standard items with plenty of second-hand buyers. A trailer also tends to outlast the tractor unit that pulls it, so a longer term may be available.

Specialist trailers draw more questions. A refrigerated trailer's fridge unit has its own running hours and service history, and lenders will want to see both. Tankers, low loaders and bespoke bodies have fewer buyers, so expect a bigger deposit or a shorter term. And because many lenders want an asset to be under a certain age by the end of the agreement, older trailers get shorter terms. A trailer you'll run for ten years doesn't need paying off in three.

Growing the fleet

Once you run a fleet, adding vehicles one agreement at a time gets slow. Many lenders offer a fleet facility: an agreed limit under one master agreement, so you can add trucks and trailers without a full application each time.

Before you add vehicles, check three things:

• The work is there. A new contract is the best reason to add a truck. A truck bought in the hope of work is a cost every month from day one.
• Your operator licence authorises it. Your licence sets a maximum number of vehicles and trailers, and increasing it takes time.
• The working capital is there too. Every extra truck adds fuel and wages before its first invoice is paid. Growth without working capital finance is how busy hauliers run out of cash.

For short or uncertain contracts, hiring vehicles costs more per week but saves you committing to years of payments.

Fuel and running costs

Fuel is one of a haulier's biggest costs, and its price moves. Most operators buy it on fuel cards, which work as short-term credit: you fill up now and pay the provider days or weeks later. The provider sets your credit limit, and a growing fleet can outgrow it.

Tyres, repairs, insurance and road charges add to the weekly outgoings. Funding these with a long loan is a mistake, because you'd still be paying for this year's diesel in three years' time. Better fits are invoice finance, which grows with your sales, or an overdraft or revolving credit facility, which you draw on in tight weeks and repay when customers pay, paying interest only on what you use.

Getting paid on 60 or 90 days: invoice finance

For many hauliers, invoice finance is the single most useful facility. You borrow against invoices you've issued to business customers. The provider advances most of each invoice, commonly somewhere between 70% and 90%, often within a day or two, then pays you the rest, minus its fees, when your customer settles.

It suits haulage because it tackles the cause of the gap, the slow payers. It grows as you take on more loads, without a new application. And the invoices are the main security, which helps when your vehicles already have finance on them.

A few points matter for transport in particular:

• Proof of delivery. Providers usually want it for each load before they'll fund the invoice, so slow paperwork from drivers means slow funding.
• Big customers. If one or two customers make up most of your sales, expect a lower advance or a cap on how much you can borrow against any one of them.
• Offsetting balances. If you also buy from a customer, such as subcontracting work back to them, it can complicate the facility.

You'll choose between factoring, where the provider chases payment and your customers know it's involved, and invoice discounting, where you keep collecting and it's usually confidential. Our guide to invoice finance vs a business loan explains both, with the costs and contract terms to check.

An illustration, not a quote. A haulier with eight trucks wins a retail contract worth £60,000 a month, paid 60 days after invoice. It needs two extra trucks and drivers, so about two months of fuel and wages go out before the first payment lands. The trucks go on hire purchase. An invoice finance facility advancing 80% means each £60,000 invoice releases £48,000 within days of delivery, which covers the running costs while the customer takes its 60 days. When the customer pays, the provider takes back its advance and fees and passes on the rest. These figures are illustrations: your terms depend on your business and your customers.

Your operator licence and financial standing

If you run goods vehicles over 3.5 tonnes for your business, you normally need a goods vehicle operator's licence (O-licence) from the Traffic Commissioner. To get and keep one, you must show financial standing: access to enough money to run and maintain your vehicles properly. A set amount applies to your first vehicle and a further amount to each extra one, depending on the type of licence.

This affects finance in two ways:

• Borrowing doesn't replace it. Financial standing is judged on the money available to the business, usually shown through recent bank statements. Repayments reduce the cash you have available, so plan new finance and your standing together.
• Some facilities can help. Money in the bank counts, and some kinds of unused facility, such as an available overdraft, can usually count too. The Traffic Commissioner's guidance sets out what's accepted and how to evidence it, so check before relying on a particular facility.

If you add vehicles, you'll need to show standing for the higher number. Falling short can put your licence at risk. The current amounts and rules are on GOV.UK.

Seasonal peaks

General haulage often peaks before Christmas. Agricultural hauliers are busiest at harvest. Construction haulage slows in bad weather. A peak brings extra fuel, agency drivers, hired vehicles and overtime, all paid before the extra invoices are.

The finance that suits a peak is finance that flexes: invoice finance, which rises with your sales, or a revolving facility you draw on for the busy months and clear afterwards. Some asset finance lenders can also lower vehicle repayments in your quiet months, though it usually adds to the total cost.

Comparing the options

What lenders look at

Expect a lender to ask about:

• Bank statements and accounts. Usually the last three to six months of statements and your latest accounts, to see turnover, margins and existing commitments.
• Your O-licence. The licence type, how many vehicles it authorises and your compliance history. Recent action by the Traffic Commissioner or the DVSA is a real concern for most lenders.
• Your customers. Who they are, how reliably they pay and how much of your work comes from the largest one.
• Your fleet. The age, mileage and finance already on your vehicles, and what they're worth.
• Fuel and contracts. Whether your rates allow for fuel price changes, and how long your main contracts run.

Directors of limited companies are often asked for a personal guarantee. Lending of £25,000 or less to sole traders and small partnerships is regulated by the FCA, while lending to limited companies and LLPs is generally unregulated.

Common mistakes

• Buying trucks without the working capital to run them. The truck is the visible cost. The two months of fuel and wages before the first payment are what catch people out.
• Funding running costs with long loans. This month's diesel shouldn't still be on the books in three years.
• Ignoring financial standing until it's tested. Plan new borrowing and new vehicles with your licence in mind.
• Slow proof of delivery. With invoice finance, missing paperwork delays your money.
• Relying on one customer. One late payment or lost contract can hit both your income and your funding.

Questions people ask

Can a haulage company get invoice finance?

Yes, and it's widely used in haulage because customers often pay on 60 or 90 days. The provider advances most of each invoice soon after delivery, usually once it has proof of delivery. Facilities can be confidential or include credit control.

Does finance count towards O-licence financial standing?

Money available to the business counts, and some unused facilities, such as an available overdraft, can usually count too. Taking on finance doesn't remove the requirement, and repayments reduce what you have available. Check the Traffic Commissioner's guidance on GOV.UK for what's accepted.

Can I finance trailers as well as trucks?

Yes. Trailers are commonly funded with hire purchase or leasing, and standard trailers with a strong second-hand market are the easiest to fund. Because trailers often outlast tractor units, a longer term may be available.

Can a new haulage business get finance?

Yes, though options are narrower. Expect larger deposits on vehicles, personal guarantees from directors, and closer checks on your experience and contracts. You'll also need to meet financial standing for your O-licence from the start.