Technology consulting firms are often started by individuals with deep knowledge in their field and a track record of corporate work. They usually start as self-employed professionals. However, if the business succeeds, they often add staff to help grow the company. Before long, the company has employees and needs to manage payroll.
Payroll is the largest expense for a technology consulting firm. While technology companies often purchase expensive equipment, the cost of network engineers, technology architects, software developers, and quality assurance testers often exceeds other expenses. Consequently, having funds to make payroll is always one of the most important tasks for a technology consulting firm owner.
The biggest financial challenge
The biggest financial challenge for many technology consulting firms is quite mundane: cash flow problems due to slow payments by corporate clients. Most large corporations pay their invoices on credit terms — in 30, 60, or even 90 days. Obviously, they demand these terms because it’s good for their cash flow, and they get to use your services for a couple of months without paying for them. It amounts to an interest-free loan.
However, small technology firms need faster payments. They need to cover their growing payroll and other expenses. If the firm does not manage its finances correctly, it risks running into problems. At worst, it may not have enough cash to cover payroll because its funds are tied in slow-paying receivables.
Get liquidity by financing invoices
Most technology consulting companies owners finance their businesses the old-fashioned way, through their own funds or by getting friends to invest. Most fund it without using venture capital, because the VC business model is not very compatible with the organic growth path that most consultancies follow.
In many cases, venture capital or similar investments would be overkill, anyway. The problem is simple: clients pay slowly but you need them to pay faster. There is a better solution: finance your invoices.
Invoice financing offers a simple solution to this problem: a factoring company finances your invoices from slow-paying commercial clients. This solution gives you immediate liquidity to cover payroll expenses and other critical costs. Invoice financing companies hold your invoices and settle the transaction when your customer pays on their regular schedule.
Stabilize cash flow. Grow your company
When used correctly, an invoice financing line stabilizes your cash flow. Instead of waiting up to two months to receive a payment, your company receives financing from the factor, enabling you to focus on operating your business, instead of chasing invoice payments.
The most important benefit of invoice financing, however, is that it can help you grow your company. Financing your receivables enables you to offer credit terms of up to 60 days to new or existing clients without having to worry about potential cash flow problems. And the line is designed for flexibility, growing alongside your business.
Will invoice financing work for you?
Invoice financing can be integrated into most companies with good billing practices. The transaction is relatively simple. The factor purchases your invoice in two payments. The first payment covers as much as 80% of the invoice and is wired to your bank account as soon as your customer receives and accepts the project deliverable.
The second payment covers the remaining 20%, less any funding fees, and is sent once your client pays the invoice in full, on their regular schedule. You can learn more about invoice financing by reading “What is factoring?”
Will your technology consultancy qualify?
Qualifying for invoice financing depends on a few factors, but it’s much easier than securing conventional bank financing. Most importantly, your invoices must be payable by customers with solid commercial credit, since the invoices act as collateral for the transaction. You must also have good billing practices and invoice only for delivered services or products. Finally, your invoices and other assets should be free of encumbrances.
Get more information
We are a leading factoring company and can provide high advances at low rates. For information, get an online quote or call (877) 300 3258.