Managing a rapidly growing security guard agency can be professionally challenging. While business growth can be rewarding, it often brings financial demands that must be handled correctly. For example, fast-growing agencies often notice that expenses get ahead of revenues, which can create cash flow problems. Because payroll is due every week or two, it’s common for security guard agencies to have to pay their employees before their customers have paid for services.
However, most commercial and government clients pay invoices in net-30 to net-60 days. If you do not have a reserve to handle payroll while waiting for invoices to pay, you will experience cash flow problems.
One solution – ask for faster payments
A common way to solve this problem is to ask customers for quick payments. This approach can work to your advantage if your customers are well capitalized. You will have to offer a discount in exchange for quick payment, but it’s well worth it.
However, there are two problems with this strategy. First, it does not produce reliable results because your clients can choose if – and when – to pay early. Second, some business owners are concerned about requesting quick payments because clients may think that they are financially weak.
While this strategy does improve your working capital, it does not provide a sustainable solution – especially if you are growing quickly.
A better solution – extend your resources with factoring
Most companies would not have a cash flow problem if their customers paid quickly. One simple way to get the benefits of a quick payment, without asking your customers to pay quickly, is to factor your invoices. This solution provides a financial advance on your slow-paying invoices. You get immediate funds to operate and grow your company without having to wait up to 60 days for a customer payment.
When used properly, invoice factoring allows you to offer credit terms to clients, without having to worry about slow payments. This benefit makes factoring a great tool for fast-growing companies that are short on funds.
How does invoice factoring work?
The transaction is very simple. You work with a factoring company that acts as your financial intermediary. They finance your invoices from creditworthy clients and settle once your customers pay. The transaction is often funded in two installments, the advance and the rebate.
The advance covers 90% of the gross value of the invoice and is wired to your bank account as soon as the work has been completed. The remaining 10%, less a factoring fee, is rebated to your account once your client pays the invoice in full on their usual schedule.
The factoring fee ranges from 1.15% to 3% per 30 days, depending on the size of your invoices and the credit quality of your clients. To learn more, please read “How does invoice factoring work?”
Is invoice factoring right for my security guard company?
While factoring can be a flexible solution, it is not right for everyone. Factoring solves one specific problem very well: having solid commercial clients but being unable to afford to offer them net-30 terms.
Additionally, your company should:
- Have good invoicing procedures
- Be well managed
- Not have serious legal/tax problems
The most important benefit of factoring receivables is that the line can easily adapt to growing companies. Unlike bank loans with fixed limits, factoring lines can grow with your revenues. This aspect of factoring makes it an ideal alternative for small and growing security agencies that have growth opportunities but are being held back by cash flow problems.
Get a quote
We are a leading factoring company and can provide you with high advances at competitive rates. For information, please get an online quote or call (877) 300 3258.