For a transport, logistics or warehousing business in Somerton, in Melbourne’s north, the weeks leading into the final quarter can be a useful time to look at what additional work may cost before it starts producing additional cash.
On 20 September, Christmas is still well ahead.
Freight volumes have not necessarily increased yet. Customers may still be trading normally. The busiest part of the year may be weeks away.
But if a business expects more deliveries, larger customer orders, additional warehouse activity or stronger freight demand later in the year, some preparation may need to happen much earlier.
Vehicles may need servicing.
Tyres may need replacing.
Additional drivers or subcontractors may need to be lined up.
Fuel use could increase.
Warehouse labour may need to expand.
And commercial customers may still take 30, 45 or even 60 days to pay.
That makes September a useful time to ask:
If the work increases later in the year, how much cash will we need to fund it before our customers pay us?
More kilometres usually mean more money going out first
A transport business can win additional work and see its expenses rise almost immediately.
More kilometres can mean:
higher diesel costs
more driver hours
additional subcontractor payments
tolls
tyres
servicing
repairs
registration and compliance costs
trailer expenses
additional administration
Most of those costs occur while the work is being performed.
The customer payment may come much later.
That timing difference is where working capital becomes important.
The business may be earning good margins and still need considerably more cash to support a higher level of activity.
A profitable freight contract can still stretch cashflow
Consider a transport operator offered a new commercial contract starting later in the year.
The customer is reputable.
The rates make sense.
There is enough vehicle capacity.
Operationally, the job looks attractive.
But the customer pays 45 days after invoicing.
The operator may need to fund fuel, wages, subcontractors and maintenance for several weeks before receiving the first meaningful payment.
The right question is therefore not only:
Will this contract make money?
It is also:
How much money will we need to carry it until the customer starts paying?
Those are different calculations.
A contract can be profitable over twelve months and still create significant short-term pressure during its first six or eight weeks.
Driver wages arrive much sooner than customer payments
Payroll timing is particularly important for businesses with commercial customers.
Drivers and warehouse staff may be paid weekly or fortnightly.
Customers may pay monthly or according to 30-day or longer terms.
If additional employees are brought on before activity increases, the business may carry several payroll cycles before the associated revenue reaches the bank account.
Suppose two additional drivers start in October.
Their wages, super and employment costs begin immediately.
If their work is invoiced at the end of October and the customer then pays in December, the business has funded those employees for a substantial period.
That cost needs to be included in the working capital forecast.
Subcontractors can create the same gap
Some operators expand capacity by using subcontractors rather than employing additional drivers.
That can provide flexibility, but it does not remove the cashflow issue.
A subcontractor may expect payment weekly, fortnightly or within a shorter period than the end customer.
The business may therefore need to pay the subcontractor well before collecting from the customer.
As freight volumes increase, that mismatch can grow quickly.
Before committing to additional subcontracted capacity, compare:
when the subcontractor expects payment
when the customer is invoiced
when that customer normally pays
the margin retained by the business
how many weeks the business may need to carry the difference
The value of the work matters.
So does the timing.
Fuel can consume working capital quickly
Fuel is one of those expenses that can rise immediately when activity increases.
A transport operator may already have fuel-card arrangements or supplier terms.
Even so, higher kilometres usually result in higher fuel bills.
If several trucks are running more often over a period of weeks, the additional cash requirement can become substantial.
The key is to calculate the expected increase rather than simply assuming existing cashflow will absorb it.
If the business normally spends $25,000 a week on fuel and expects activity to increase by 20 per cent, that is another cost that needs to be carried until customer receipts catch up.
Planning it in advance can make a significant difference.
Do the vehicles need work before demand increases?
September is also a useful point to look at fleet readiness.
If a truck or trailer is likely to need tyres, servicing or repairs before heavier use begins, dealing with it early may reduce the risk of an unplanned interruption later.
But those costs can also reduce the cash available for everyday operations.
That creates another funding decision.
Should the business use cash for the repair?
Would asset finance be relevant if a vehicle or trailer needs replacing?
How much working capital should remain available for wages, fuel and suppliers?
Vehicle and cashflow decisions should be considered together.
Using most available cash to replace an asset can leave very little buffer for the cost of operating it.
Warehouse businesses can face similar pressure without owning trucks
The same cashflow pattern can apply to warehouse and distribution businesses.
Additional customer volume may require:
more pickers and packers
overtime
temporary staff
pallets
packaging
forklifts or equipment hire
storage
freight
higher electricity and operating costs
The customer may still pay according to normal commercial terms.
That means the warehouse is funding the additional activity before receiving the associated cash.
The business should estimate how much its weekly operating costs could increase if customer volume rises later in the year.
Customer payment terms deserve closer attention
A customer listed as 30 days does not always pay in 30 days.
A transport or logistics business preparing for increased activity should look at actual payment behaviour.
Which customers pay on time?
Which regularly run late?
Which only process payments on particular days?
Do larger customers have complicated approval processes?
If a customer generally pays 40 days after invoice, forecast 40 days.
Do not build the plan around day 30 simply because that is what the invoice states.
This matters even more as December approaches because customer staff may take leave and payment processes can slow.
The debtor ledger can grow alongside the workload
A business can become busier and find more money tied up in receivables.
That can feel counterintuitive.
The trucks are moving.
The warehouse is busy.
Invoices are being issued.
Revenue is increasing.
Yet available cash is tighter.
The reason may simply be that sales have grown faster than customer payments.
A larger debtor ledger means the business is carrying more of its customers’ payment cycle.
For eligible B2B businesses, debtor or invoice finance may be worth considering.
Some facilities can provide earlier access to part of the value of qualifying commercial invoices rather than waiting for customers to complete their normal payment cycle.
When debtor finance may be relevant
Debtor finance can be particularly relevant where the business has completed the work, issued valid invoices and is now waiting to be paid.
Depending on the lender, the assessment may consider:
debtor ledger value
customer quality
invoice age
payment history
debtor concentration
disputes or credits
nature of the underlying work
It is not suitable for every business.
But where the primary problem is the delay between invoicing a commercial customer and collecting the money, it may align more closely with the cashflow cycle than a general-purpose loan.
Do not confuse additional work with available cash
A full schedule can create confidence.
Every truck might be allocated.
The warehouse may have strong bookings.
Customer orders may be increasing.
That is all positive.
But none of those things automatically tell you what is in the bank account.
The business still needs to meet expenses as they fall due.
This is why operational forecasts and cashflow forecasts should be looked at together.
If the business expects a substantial increase in work later in the year, translate that activity into weekly cash costs.
How much extra fuel?
How much additional payroll?
How many subcontractor invoices?
What maintenance is expected?
Then compare those outgoing payments with realistic customer receipt dates.
A large new customer can change the cash requirement quickly
Imagine a Somerton transport business wins a sizeable new customer.
The contract may require an extra truck movement every day.
Revenue increases substantially.
But so do the weekly operating costs.
If the new customer pays 45 days after month-end, the first major payment may be much further away than the business initially expects.
That can create a considerable working capital requirement during the early stages of the contract.
Before saying yes, the business should ideally know:
what the additional weekly costs will be
how long it will carry them
how much cash remains after funding them
what happens if the first customer payment is late
This is not about avoiding growth.
It is about making sure the business can afford to support the growth it has won.
Existing facilities may be enough, but check the numbers
Some businesses already have an overdraft, line of credit or other cashflow facility.
It may be perfectly adequate.
But it is worth checking how much genuine capacity remains.
If the business normally uses most of an overdraft during ordinary trading, there may not be much room for a period of higher fuel, payroll and repair costs.
Review:
current facility limits
typical utilisation
seasonal usage
existing repayments
tax obligations
likely additional operating expenses
A facility that worked when the business had six trucks may not provide the same buffer after the fleet and turnover have grown.
January should already be included
Even on 20 September, January belongs in the planning conversation.
A business could do more work in November and December and still be waiting for payment after Christmas.
Customers may close.
Accounts teams may operate with reduced staff.
December invoices may not be processed until January.
At the same time, the transport or logistics business still has:
payroll
fuel
repairs
insurance
finance repayments
supplier accounts
rent
tax commitments
A strong December workload does not guarantee a strong January cash position.
The forecast should continue until normal customer payment patterns are expected to resume.
Planning early does not mean borrowing early
Reviewing working capital now is not the same as drawing finance now.
The business may eventually decide that no additional finance is needed.
Existing cash may be sufficient.
Customer terms might be renegotiated.
Supplier arrangements may provide enough flexibility.
An existing overdraft may have adequate capacity.
But if a gap is likely, understanding it early allows the business to compare its options before the money is urgently required.
That usually provides a better basis for making a commercial decision.
What information can help with a cashflow review?
Depending on the lender and finance structure, useful information may include:
recent business bank statements
financial statements or management accounts
current turnover
debtor ledger
creditor ledger
customer payment terms
major customer contracts
existing vehicle and equipment finance
ATO position
expected additional work
projected payroll
expected fuel and operating costs
amount required
purpose of the funding
expected timing
likely repayment source
For a transport or logistics business, being able to explain the relationship between increased work and increased operating costs can be particularly useful.
Five questions Somerton businesses may ask while planning ahead
Can working capital finance help with fuel and payroll?
Depending on the facility and lender, business finance may be available for eligible operating expenses such as fuel, payroll and supplier costs. Requirements and permitted uses vary.
What if we win a larger transport contract before Christmas?
It can help to calculate how much additional cash will be required to operate the contract before the first customer payments arrive. If existing resources are insufficient, working capital options may be worth investigating.
Can unpaid freight invoices be used to access finance?
For eligible B2B businesses, debtor or invoice finance may provide funding against qualifying receivables. Lenders generally assess the invoices and the customers responsible for paying them.
What if we also need another truck or trailer?
Asset finance may be considered separately for eligible vehicles or equipment, while another facility may address operating cashflow. The appropriate structure depends on the business and circumstances.
Is 20 September too early to think about Christmas freight cashflow?
No. The busiest part of the year may still be ahead, but if additional vehicles, staff, maintenance or customer capacity may be required later, this is a sensible stage to forecast the potential working capital requirement.
Know what additional freight will cost before accepting it
For transport, logistics and warehousing businesses in Somerton VIC, stronger end-of-year activity can be a valuable opportunity.
But more work can also mean more fuel, wages, subcontractors, repairs and cash tied up in customer invoices.
Thrive Broking can help Somerton businesses review that expected cashflow cycle and compare working capital, debtor finance, asset finance and other commercial funding options across our lender panel where appropriate.
The purpose of planning in September is not to assume the Christmas freight period has already arrived.
It is to understand whether the business will have enough cash to support the additional activity if and when it does.
A Broker’s Observation
A transport business can look extremely busy while its bank account becomes tighter.
That is not necessarily a contradiction.
If the business adds another $50,000 a week of work but has to fund fuel, wages and subcontractors for several weeks before collecting the customer invoices, growth can absorb a surprising amount of cash.
I would want to know the maximum amount the business expects to have tied up between doing the work and getting paid.
That number can tell us far more about the working capital requirement than the value of the contract alone.