Security companies are known for being payroll intensive businesses. Its human capital are the most important assets of the business. Therefore employees need to kept happy and be paid regularly in a timely fashion – usually on a weekly or biweekly basis. Missing payroll could create serious problems and possibly threaten the business.
Cash flow problems can happen
A few security companies can run into problems because commercial and government clients usually pay their invoices in 30 to 60 days. Because of this, many security companies find themselves in the situation where many expenses are immediate but revenues are delayed by 30 to 60 days. If the security agency has a cash reserve, this delay should not be a problem. If it does not have the reserve, it will be forced to cut costs, delay payments or turn away business. In some cases, the cash flow problem could balloon into a full fledged cash flow crunch.
A solution to this common problem may as simple as financing the company with factoring for security companies. It solves this cash flow problem by accelerating payment on your invoices. However, your corporate and government security clients do not need to pay their invoices sooner. Rather, you work with a financial intermediary, known as a factoring company, who advances funds against your invoices. They hold the receivables until is paid by your customer and then settle the transaction with you. The main advantage of factoring is that you no longer need to wait to get paid by clients – you get the funds from the factor. This allows you to have funds to cover payments – and more importantly – take on new opportunities.
Easy to get
As opposed to most conventional banking solution, invoice financing is relatively easy to get. The most important requirement to qualify is to have credit worthy clients. Aside from this, your company needs to be free of liens, free of legal problems and free of tax problems.
Also, receivables financing can be a very cost effective solution. Most solutions provide a high initial advance – often 90% – and fees as low as 1.5% per 30 days. This, combined with the fact that the line can grow dynamically, make it an attractive solution for growing security companies. This case study provides more details on using this solution as a tool for growth.