Most office cleaning companies are started by folks that have knowledge, ambition and often not enough working capital. Because of this, their companies are run as lean operations. Owners don’t keep a substantial cash reserve because they don’t have the money. Instead, they rely on their clients paying their invoices on time. Timely payments are important because the cleaning company has its own expenses to pay – supplies, rent and staffing costs.
Slow payment cause problems
Most office buildings and commercial customers will ask for payment terms when they sign a cleaning contract with you. It’s common to offer 30 days to pay an invoice if the customer has sufficient commercial credit. The problem is that many companies take a little longer than their terms to pay their invoices. It’s not unusual for companies to pay 10, 15 or even 30 days beyond terms. This can create financial problems, especially if your cleaning company is growing and you are not keeping and eye on the bottom line.
Improve cash flow by funding invoices
One simple way to improve your cleaning company’s cash flow is to finance your invoices using a factoring company. This minimizes the challenges of providing terms because your invoices get funded quickly. Instead of waiting up to 60 days to get paid, you receive an 80% advance as soon as you complete the cleaning and bill for it. The remaining 20% is retained to cover any potential underpayments. The remaining 20% (less the fee) is rebated once your client pays the invoice in full. Your client pays on their usual schedule and does not need to pay sooner.
Offer terms with confidence and grow your cleaning business
The obvious advantage of factoring your receivables is that you will be able to offer payment terms to your building management and office clients without worrying about slow payments. That is because you will always have the option to finance an invoice if you need funds.
If your office cleaning company was turning clients away because it was unable to offer terms – invoice factoring can be a game changer. When used correctly it can help you grow your business past its current financial limitations.
Most receivable financing lines are offered as selective facilities. This means that you can select which invoices and which customers to finance. However, you will be better off factoring all the invoices from a few customers than, say, factoring selectively across invoices and customers. It’s easier to keep track of things and manage payment performance.
Getting the best possible rates
Rates for A/R financing vary based on a number of criteria. However, to ensure you get the best possible rates you should:
- Work with credit worthy commercial or government clients
- Have good billing practices
- If possible, use an acceptance letter (lowers transaction risk)
- Submit a well crafted application
One important advantage of this accounts receivable factoring is that it can usually be deployed fairly quickly. The application process takes a couple of days on average. Most companies can get their first funding in a week or two. Subsequent funding take a business day or two.
This makes A/R factoring an ideal solution for cleaning companies that have cash flow problems due to slow paying clients, and need immediate funding to capitalize on new opportunities.