Financing A Security Guard Company With Invoice Factoring

Although conditions are improving as we are emerging from one of the worst recessions in history

, getting business financing remains very hard. This is difficult for small companies because they are having the hardest time getting financing even though they need it the most. Outsourced labor companies such as security guard companies and staffing agencies are noticing a significant improvement in their sales but can't follow through because they are not well financed.

To make things harder, commercial customers that used to pay their invoices in 30 days are now taking 45 days or longer to pay. This creates a serious cash flow problem, since security guard companies need to cover payroll on a weekly basis. Few companies can afford to wait that long to get paid.

One way to solve this cash flow problem is to shorten the time between delivery of services and receipt of payment. Since asking clients to pay sooner seldom works, the alternative is to use invoice factoring.

Invoice factoring provides an advance on slow paying invoices. The mechanics are simple. You sell the invoice to a factoring company, who pays you for it upfront. This provides you with the funds you need to meet your companies expenses. The transaction is settled once your client pays the invoice in full. Factoring companies always structure the purchase in two parts. The first part, called the advance, covers 80% to 90% of the invoice and is given to you immediately. The second part, which is the remaining 10% to 20% is provided once your client pays. The factoring fee is usually deducted from the second transaction.

Invoice factoring has been gaining popularity in the past few years. And in many circumstances, invoice factoring can provide a better solution than a business loan. Furthermore, factoring is easier to get than most business loans.

A major advantage of accounts receivable factoring is that factoring companies look at the credit quality of your invoices as one of the most important parameters in their funding decisions. This means that small but well run companies whose only asset are invoices from good clients can usually qualify.

by: Marco Terry

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