In simplest terms, locked capital is used to categorize money that is either inaccessible, or funds that are allocated for other uses. For example, trucking fleets with existing loans have a portion of revenue locked to make monthly payments on those liabilities. The value of assets such as trucks, owned storage facilities, and other equipment is locked unless those items are sold. Locked capital also exists in the form of unpaid receivables, which can severely impact the ability for trucking fleets to perform.
Locked Capital and Receivables
Trucking fleets operate on staggered payment schedules. When a shipment is delivered, the client has a window in which to pay the balance owed, which can range anywhere from 30 to 90 days. During that time, the revenue is considered “locked.” There is no way to access that revenue until the client pays. In the meantime, trucking fleets need to pay overhead expenses, make payroll, and pay down liabilities. Locked capital places a strain on cash flow, and the lag in revenue can push trucking fleets to take out short-term loans to overcome temporary financial obstacles. Unfortunately, those short-term loans create more liabilities, which creates more locked capital as money is used to pay off the balance on top of the other regular expenses.
Unlocking Capital from Unpaid Receivables
Instead of waiting a month or longer for client payments or taking on debt through short-term loans to fill in gaps in revenue, trucking fleets use freight factoring. Freight factoring turns unpaid receivables to cash within a single day to eliminate the long wait and lag in revenue. Freight factoring turns locked capital into accessible funds without placing debt on the books. Trucking fleets use freight factoring to improve liquidity and cash flow, as well as to build up capital reserves for growth opportunities.
At Express Freight Finance, we are a national leader in freight factoring for trucking fleets of all sizes. We help fleet owners reduce locked capital by factoring receivables and providing tools for fleets to check on the creditworthiness of their clients. If your fleet has capital locked up in unpaid receivable, contact the experts at Express Freight Finance today.