Managing the working capital resources for security guard company can be very challenging. The company needs to carefully manage the cash inflows and outflows to ensure that it always has the resources to cover operating expenses. One clear example of this is payroll. Most security guard agencies need to pay their employees on a weekly or biweekly basis. However, most agency customers pay their invoices on net 30 to net 60 day terms. Companies that don’t have the resources to wait this long to get paid can run into working capital problems. If left unchecked, these working capital problems can grow and threaten the stability of the company. One way to address this problem is to use the business financing tool called invoice factoring financing.

Factoring financing solves the problem in a very simple way. A factoring company advances funds to the security guard company and holds the slow paying invoices as collateral. This provides the security agency with the working capital it needs to meet payroll and other important expenses. The transaction settles once the end customers pay their invoices on the regular schedule. Most factoring transactions are structured as the purchase of an invoice in two installments. The first installment, which covers about 90% of the accounts receivable, is provided as soon as the work is invoiced. The second installment, which covers the remaining 10% (less the factoring fee), is advanced once the end customer pays the invoice in full.

Qualifying for invoice factoring is easier than qualifying for other financial products. The most important requirement to qualify for invoice factoring is to have credit worthy commercial customers. This is critical to because the credit worthiness of your customers is a collateral that the factoring company is relying upon. Aside from that, your security guard agency also needs to meet the following requirements:

• Your invoices and time cards need to be for completed work
• Your invoices need to be free and clear of liens and encumbrances
• Your company must be free of legal and tax problems

Perhaps the most important advantage of using invoice factoring financing for security guard companies is that it provides a flexible financial solution. The factoring line is designed to be dynamic and can grow with your revenues, provided that your company meets the factoring criteria. Because of this, factoring can be a great financial tool for growing security guard companies that have great opportunitie.s but are being held back by working capital problems.

Although security firms and private investigation companies can be very profitable they also tend to have very tight cash flows. That is because most commercial and insurance customers pay their invoices in 30 to 60 days. However, the company needs to pay employees every week or two. Unless the company has a cash reserve that can be used to cover current expenses, it will risk running into cash flow problems. One way to address this common problem is to accelerate the funds that are tied to slow paying invoices by using invoice factoring.

Factoring provides the private investigation and security company with the funds it needs to meet current expenses and take on new clients. Your insurance and corporate customers don’t have to pay sooner though. Rather, a factoring company will intermediate the transaction an advance your company funds, using your invoices as collateral. Usually you can get between 80% to 90% of the gross value of the invoices advanced to your company. You get the remaining 10% – 20% (less fees) once your customer pays in full.

One advantage of working with factoring companies, as opposed to other types of institutions, is that they consider your receivables to be your most important collateral. Because of this, factoring is easier to obtain than other sources of funding. The most important requirement is that your customers need to have a solid credit rating. Additionally:

• Your invoices need to be for completed work
• Your invoices must be free of liens
• Your company must be free of legal and tax problems