Ways to Manage Working Capital for a Transport Business - Heavy Vehicle Finance Australia
Ways to Manage Working Capital for a Transport Business

One of the key areas required to succeed in a transport business, is proper management of the working capital position. If working capital is not managed successfully, a business will not be able to meet ongoing obligations such as wages, fuel accounts, mechanical accounts, taxation and other business-related expenses.

What is Working Capital?

Debtors and CreditorsWorking capital is the funds used by a business to pay for the day to day trading operations. Working capital is generally calculated by subtracting the current creditors of the business from the current debtors of the business.

In simple terms;

Debtors – relates to monies owed to a business for goods and services they have provided.

Creditors – relates to monies owed by a business for the consumption or purchase of goods and services.

General trading practices mean that companies or businesses collect payments from their debtors, so they can make payment to their creditors. If the collection of debtor payments becomes protracted, it may be difficult for a business to make payments to their creditors.

Such difficulties could become evident, if a transport company is paid for the work they have done 60 days after completion of the job – however, expenses such as fuel, repairs or tyres might need to be paid within a 30-day period. If the transport company does not have sufficient cash reserves or appropriate lending facilities, they could easily experience working capital constraints.

What Lending Facilities are Available for Business to Help with Working Capital?


Truck Finance OverdraftThe most common facility available to businesses, to minimise the effect of the timing differences between the collection of debtors and the payment of creditors is an overdraft.

This facility allows a business to access money once their account balance goes below zero. For instance, if the overdraft limit is $50,000, the business can use up to $50,000 of the financier’s money to pay credits and other business-related expenses.

Once the debtor payments have been received, the debit balance is reduced and hopefully the account goes into credit once all debtor payments have been received.

An overdraft facility is not a term loan, but a revolving facility – which means the minimum monthly payment is the interest charged on the debit balance on the account for the month.

Overdrafts can be offered by financial institutions to their customers as either secured or unsecured facilities.

Secured Overdraft

Is a facility that is security by real property. The property security offered can be either residential or commercial in nature.

Features of a secured overdraft

  • Higher limits can be obtained as collateral has been offered (limits can be extended up to 80% of the value of the property security offered – for instance property value of $300,000, would mean the maximum facility limit would be $240,000)
  • Lower interest rates paid by the business on the debit balance for the month
  • Allows the business to manage the timing difference between the collection of debtor payments against the required payments to creditors
  • Means that directors may need to offer own personal property assets to support the business

Unsecured Overdraft

Is a facility that is not secured by real property. The facility is offered by a financier based on risk profile of the client and the industry they operate in.

Features of a secured overdraft

  • Lower limits can be obtained (often these limits are between $20,000 to $50,000 maximum)
  • Higher interest rates paid by the business on the debit balance for the month as the financier has no collateral security and hence higher risk of loss if the company goes bust
  • Good facility for a newly created business as equity has not yet been built into the business, but capital is available in the short term to meet ongoing business expenses

Debtor Finance / Factoring

This type of lending facility is when a financier provides funding to a business to cover working capital by using the debtor book as security and is an alternative to an overdraft facility.

Debtor FinanceA debtor finance facility, provides businesses with access to funds immediately after they have completed work for goods or services. A business provides the finance company with a copy of the invoice relating to the work completed and is extended 80% of the value of the invoice into their business account the day after the invoice is received. These funds can then be used by the business to make payments to their creditors.

Once the business is paid back by the company they did the work for (i.e. debtors), the advanced funds plus interest are repaid back to the financier.

Debtor Finance / Factoring Facilities can be offered by financial institutions to their customers as either disclosed or undisclosed facilities.


Under this arrangement, the business that has the debtor finance facility is responsible for the collection and maintenance of the debtor book.


Under this arrangement, the financier that provided the debtor finance facility is responsible for the collection and maintenance of the debtor book. The financiers account details are put on the bottom of every invoice and payment is made direct to the financier when the debtor has paid. From there, the client is paid the remaining 20% of the advance invoice amount – less interest and fees.

Features of a debtor finance facility

  • Provides funding opportunities for businesses that could not obtain an overdraft
  • Debtor finance facilities are good for rapidly growing businesses
  • Overdraft limits are restricted to the value of the property security being offered, whereas a debtor finance facility is offered to the value of the debtor book
  • Once this type of facility is in place, customer does not need to offer additional property security as the limit of a debtor finance facility is commensurate with the size of the debtor book
  • Debtor finance is only available to certain industries (for instance the transport industry qualifies, however the building industry generally does not)
  • Higher fees paid by the business compared to a secured overdraft, given the fact that a debtor book security poses a higher risk compared to property security
  • Due diligence is done by the financier on all companies in the debtor list, which means that some debtors may be deemed unacceptable

Why is it Important for a Transport Business to Successfully Manage Working Capital Position?

If a transport company gets paid 30-60 days after the completion of a job, but does not have funds available to cover wages, truck payments and fuel payments on a week to week or monthly basis – many different problems could start to arise for the business.

FactoringIf working capital issues begin to arise, such problems could be as follows;

  • Late payments on truck loans (which could make it difficult for the company to obtain cheap truck finance going forward)
  • Hard to retain good truck drivers or administration staff
  • Cancellation of fuel accounts (this could be a small independent supplier or a large supplier such as BP)
  • Late payment fees charged by suppliers
  • Could loose new work contracts if the transport company does not have the ability to grow with a large increase in sales
  • Exposure to the downtime of trucks or equipment if repairs can not be paid for and carried out immediately

How can Transport Businesses Access Lending Facilities Required to Assist Working Capital Requirements?

Businesses can make contact with many different financial institutions throughout Australia, when looking to apply for either an overdraft or debtor finance facility.

Heavy Vehicle Finance Pty Ltd is a specialised finance company that deals exclusively with the Trucking and Heavy Equipment Industries Australia Wide and can provide specialist advice to businesses looking for working capital assistance.

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