Companies can get very creative with ways they use invoice factoring. One particular landscaping company we work with provides snow plowing services during the winter months. They obtain contracts with shopping malls, banks, office complexes, and various municipalities. Since they are a small company doing work in the spring, summer and fall, they do not have the capital, resources and manpower for the snow removal contracts in the winter. Therefore, they subcontract the work to various contractors that own one to three plow trucks. The landscaping company’s customer was taking 30-60 days to pay for the services but the landscaping company was unable to pay their subcontractors faster than that. Unfortunately, a lot of the subcontractors could not wait that long to be paid and had to turn down the work.
They resolved the issue by utilizing invoice factoring. The landscaping company gave their contractors a choice – they could wait until they got paid to be paid or they could be paid immediately with a 5% discount. Since most contractors have expenses such as gas and payroll, most of them opt to be paid immediately. The fee they were charged covered the factoring fees the landscaper incurred. This enabled him to take on new contracts since he had so many more contractors willing to work with him. Additionally, there was no long term commitment involved so the landscaping company didn’t have to involve factoring with their spring, summer, and fall business after the snow season.