Small waste disposal companies usually have to offer commercial credit terms to their medical, corporate, industrial, or municipal clients. It’s common to give clients up to eight weeks to pay an invoice for services such as corporate waste management, medical waste management, sharp object and hazardous material disposal, and document destruction.
The problem is that many small waste disposal companies can’t afford to offer net-30 day payment terms to their clients, leaving them at a competitive disadvantage because larger competitors can afford to offer terms. And larger companies often leverage this advantage since clients usually request credit payment terms as a condition of working with a vendor.
Why can’t smaller companies offer terms?
Smaller waste disposal companies often operate with tight cash flows. They have expenses for personnel, equipment, and trucks that are paid regularly. At the same time, their revenues come in slowly because they have to offer credit terms. This delay leaves smaller companies in a position where they cannot build a cash reserve sufficient to handle slow payments.
If you offer payment terms under these conditions, you risk running out of money. Your company may be profitable, but with all your funds tied in slow-paying accounts receivable, you may be unable to cover basic expenses. However, working with slow-paying customers is a fact of business that must be handled. One way to handle this problem is to use receivables factoring.
Get a competitive advantage with accounts receivable factoring
You can gain a competitive advantage and offer terms to your clients by using accounts receivable financing. This solution enables you to offer credit terms to your clients by accelerating their payments, which improves your cash flow. However, your clients do not actually need to pay their invoices any sooner; they can still pay on their regular schedule.
Accounts receivable financing uses a factoring company to finance your receivables from creditworthy companies, providing you with immediate working capital while the receivables factor holds onto your slow-paying invoices as collateral.
How does accounts receivable factoring work?
The transaction is relatively simple. You send the invoice to your waste disposal customer and a copy of the invoice to the factor. The factor finances the receivable in two payments. The initial payment covers about 80% of the invoiced amount and is transferred to your bank account as soon as the invoice is verified.
The remaining 20% is rebated to your account as soon as your customer pays the invoice on their usual terms. The factoring fee is usually deducted from this installment.
The cost of factoring invoices varies and is based on the size of your invoices, the credit quality of your clients, and the specific circumstances of your company. In general, costs range from 1.15% to 3.5% per 30 days.
For more information, please read “What is accounts receivable factoring?”
Can I qualify?
Most small waste disposal companies should qualify for factoring if they have creditworthy clients and if they:
- Have good invoicing practices
- Have industry experience
- Don’t have serious tax problems
One important detail is that most factoring companies do not require that you have substantial assets, outside of your invoices. And, unlike most banks, factors don’t require a track record of success. These aspects of receivables financing make it an ideal alternative for growing waste disposal companies with financial problems due to slow-paying clients.
Get more information
We can provide you with a competitive factoring quote. We offer high advances at low rates. For more information, please call (877) 300 3258.