Summary: Most auto glass installers are small or medium-sized companies. They repair or replace auto glass and then bill insurance companies or claim intermediaries for the work.
Glass installers often encounter cash flow problems because claim payments can take 30 to 90 days. This article discusses how to improve your cash flow by financing your invoices. We cover the following:
- Do you have this cash flow problem?
- How does factoring invoices help?
- Auto glass industry challenges
- Qualification criteria
- Will factoring help you?
1. Do you have this cash flow problem?
Most auto glass installation companies submit claims regularly to their insurance company clients or through intermediary networks (e.g., Lynx Services, SGC Network, etc.) Insurance claims are seldom paid quickly. Instead, the claim takes 30 to 90 days to get paid.
Offering 30 to 90 days to pay an invoice can create cash flow problems for auto glass installers that don’t have enough funds in their cash reserve. It can lead to problems paying suppliers or making payroll.
This type of problem can usually be solved with a revolving line of credit or similar products. Unfortunately, few small companies qualify for a line of credit. Most banks require an extended track record and substantial assets; few glass installers can meet the criteria.
However, an alternative called invoice factoring works like a line of credit secured by Accounts Receivable and works well with small businesses.
2. How does invoice factoring help?
Invoice factoring is a type of funding that allows you to finance your invoices from insurance and commercial clients. Instead of waiting 30 to 90 days for payment, you get funds from the factoring company. You can use these funds to pay suppliers, employees, and other expenses.
Transactions are financed in two installments. The factoring company advances 75% to 85% of your accounts receivable when you finish the job and submit the claim. Funds are usually deposited into your bank account in a day or so.
The second installment is paid once the claims are paid. This payment covers the remaining 15% to 25%, less the financing cost. This second payment settles the transaction. Most auto glass installers that use factoring finance their invoices regularly. This funding provides an ongoing source of cash flow. To learn more, read “How Does Factoring Work?”
3. Advantages of using factoring
Factoring lines can help auto glass installers whose cash flow problems are due to claims that pay in more than 30 days. The most important benefits include the following:
a) Improves cash flow quickly
The most important benefit of using factoring is that it improves your cash flow quickly. You can offer 30-day terms while minimizing cash flow risks.
b) Line adapts to your growth
The lines are tied to your revenues. The line can be increased as long as you can provide quality work and submit claims to insurance companies (or intermediaries) with good business credit.
c) Can be deployed quickly
The line can be deployed quickly, usually in less than a week. This speed makes factoring a great solution for companies that need immediate funding.
d) Easy qualification
Factoring lines have easier qualification requirements than lines of credit and similar products. It’s available to small businesses that have a limited history.
4. Auto glass industry challenges
Only a few factoring companies can work with auto glass installers. This is because some challenges are specific to this industry.
a) Many small invoices
Auto glass installers usually submit a large volume of small claims to their insurance company clients. Many factoring companies avoid these transactions because it increases their workload. Some may charge higher prices to compensate for this work.
b) Difficult verifications
Factoring companies usually verify invoices before financing them. Verification can be a challenge for two reasons. The first issue is due to the workload of verifying many small invoices. These verifications can take a lot of time simply due to their volume. The second issue is that some insurance companies are unwilling to verify individual invoices. However, this issue can be overcome if you can view your claims on the insurance company’s vendor portal.
c) Insurance company concerns
Some insurance companies commonly delay, reduce, or deny payment claims. This practice is an issue if they deny a claim you have already financed.
5. Qualification criteria
Invoice factoring has simple qualification criteria. These are the most important requirements:
a) Do your clients have good business credit?
Factoring companies finance invoices only if they are due to be paid by a company with good business credit. This requirement is essential since the transaction is based on the invoice payment.
b) Do you have liens against your company?
The factoring company must secure a first-position UCC lien against the invoices it is buying. They won’t be able to finance your invoices if another company has a lien against your assets (e.g., a lender, MCA company, etc.).
c) Are your taxes up to date? (or in a workout)
Factoring companies prefer to work with clients whose taxes are up to date. However, they can also work with companies with a tax lien, provided an adequate workout plan is in place.
6. Will factoring help you?
As a business owner, you are the only person who can decide if factoring is right for your company. In general, factoring should be able to help you if your:
- Problems are caused by slow-paying claims
- Company has reasonable profits
- Tax issues can be resolved
Get more information
We can provide you with a competitive factoring quote. We offer high advances at low rates. For more information, call us toll-free at (877) 300 3258.