A service oriented company’s primary expense is payroll and expenses related to this, such as insurance and worker’s compensation. This is the case for most staffing companies as well other service oriented companies such as security guard, information technology, pest control, management consulting, and janitorial companies. Invoice factoring and other types of accounts receivable finance are particularly well suited for these types of companies to finance their business. There are key characteristics of this financing that make it appealing for these businesses and include many practical options. Below we have listed some of these.
Speed to Obtain Financing. Lines of credit can be put into place as quickly as a week and larger multi-million dollar lines can be in place in as little as two or three weeks. This is compared to other types of funding that take at least a month or longer. Timing is critical for service oriented types of businesses because many times they are experiencing rapid growth from winning a single large project and they need payroll funding quickly.
90% Advance Rates. The margins on many of these businesses are squeezed and higher advance rates are needed to cover payroll and other expenses. Other forms of lines of credit may be available but typically advance a much lower percent of the outstanding accounts receivable than does invoice factoring.
Funding That Can Grow Rapidly. As projects are added, the invoice factoring line grows in size and can provide higher advance rates. Other traditional forms of credit typically are capped at a certain amount until there is substantial history (often a year or more).
Over-advances. In some cases there are startup expenses for projects needed to be paid before the project has any related accounts receivable. With overadvancing, money is used to pay these expenses. An example is inital payroll before first invoice is issued, another is a need to purchase and uniforms or equipment at the beginning of a project.
Industry Knowledge. Speed, flexibility, and industry knowledge are key to invoice factoring in being responsive to their client’s rapidly changing needs in the service oriented industries.
In summary, when invoice factoring is put into place correctly, it is a key enabler for payroll funding and other expenses of service oriented companies. This helps to ensure the success of these companies and allows them to grow rapidly and profitably.