One of the main challenges for private investigation firms is dealing with commercial and insurance clients that pay invoices in 30 to 60 days. Few private detective agencies can wait that long for payment, as most firms don’t have sizable financial reserves and need the money sooner to pay their own salaries, employees, and vendors.
However, corporate and insurance clients often demand credit terms as a condition of doing business. Convincing them to pay quickly is usually difficult – if not impossible.
Build a reserve
One way to solve this problem is to build a financial reserve. You can build a reserve slowly, as your company grows, by simply putting money into a special bank account every month until you have enough to feel comfortable. However, building a reserve is never easy. And private investigation firm owners are often uncomfortable having a significant resources sitting in a bank account earning minimal interest.
Enhance your reserve by factoring invoices
While building a reserve is often the best solution, it’s not always possible. However, if your company is growing quickly and has a lot of resources tied in slow-paying invoices, your expenses may actually outpace your reserves. You can fix this problem, and accelerate your revenues, by factoring your invoices.
Invoice factoring solves the root cause of the cash flow problem: slow payments by insurance companies and corporate clients. However, your customers are not required to pay sooner. Rather, a factoring company finances your invoices, providing your detective agency with funds to pay expenses. More importantly, invoice factoring minimizes the problems of offering payment terms to clients.
How does invoice factoring work?
The transaction is relatively simple. You sell your receivable to a factoring company who pays for it in two installments. The first installment, the advance, covers about 80% of the invoice, and is wired to your bank account as soon as the work is completed and invoiced.
Your company gets the remaining 20%, less the fee, once your insurance or corporate clients pays the invoice. Fees for the service vary, based on the credit quality of your invoices and your volume, from 1.15% to 3% per 30 days. To learn more, please read “How does factoring work?”
How does invoice factoring benefit my detective agency?
The most important benefit of invoice factoring is that you can offer payment terms to clients without worrying about slow payments. This benefit allows you to focus on operating and growing your business, rather than on chasing invoices.
Additionally, the size of the financing line is tied to your revenues and can grow as your sales increase. This flexibility provides critical support to growing private investigation agencies that are being held back by slow-paying clients.
Who can qualify?
The most important requirement to qualify for invoice factoring is to work with creditworthy insurance companies, law offices, and corporate clients. This requirement is critical because their ability to pay invoices supports the transaction. Additionally, your company should not have serious tax problems and your invoices should not be pledged as collateral. Most small companies that meet this criteria can qualify, making invoice factoring an ideal option for small and growing private investigation firms that cannot get conventional business financing.
Get a factoring quote
We are a leading factoring company and can provide you with competitive terms. For more information, get an online factoring quote or call us at (877) 300 3258.