Most public schools provide bus service to students who live in the area. In most cases, these buses are owned by subcontractor owner-operators and not the local school district.
A school bus contract can be a major benefit for a bus company because it provides reliable revenue to the company during the school year. However, it is not unusual for school bus companies to encounter financial problems because of how invoices are paid.
The main problem with these contracts is that they often have clauses stipulating that invoices will be paid in 30 to 60 days. This delay is not a problem for large bus operators, but it can be an issue for smaller school bus companies. They incur constant expenses such as bus repairs and employee salaries; however, few small operators have financial reserves sufficient to operate while waiting for payments. As a result, they depend on prompt payment from school districts.
Finance your school bus company
The problem is relatively simple: your company has cash flow problems because school district clients pay in 30 to 60 days. Most of these problems would not exist if your clients paid sooner. While getting clients to pay sooner can be difficult, you can get similar benefits by factoring your invoices.
How does it work?
Factoring is a financing solution that accelerates the revenues tied to slow-paying invoices. Factoring does not require your clients to pay sooner. Instead, a receivables factoring company intermediates the transaction and funds your slow-paying invoices.
This solution provides you with immediate funding to cover bus repairs, staff salaries, and other important payments. The transaction concludes once the school district pays their invoices on their usual terms.
Factoring companies usually buy your invoices in two installments: the advance and the rebate. The advance can be as much as 90% of your invoice and is funded as soon as you invoice the school district for completed work. The rebate covers the remaining 10%-20% and is wired to your account as soon as the invoice is paid on its regular schedule.
For more information, please read “What is factoring and how does it work?“
Advantages
This program can be an ideal solution for government suppliers with cash flow problems because their invoices are paying slowly. Factoring solves the problem at its root, by providing immediate funding for your invoices.
However, an even greater advantage is that factoring can allow you to grow your company strategically, as you will be able to offer credit terms to school districts without having to worry about cash flow problems. This solution can be a game-changer for companies that were unable to take on clients due to cash flow restrictions.
Easy to get
Unlike conventional business financing, getting a factoring financing line is relatively easy. The most important requirement is that you work with financially solid school districts or private schools because the credit quality of the invoice is the collateral that backs the transaction.
Most public schools systems meet this criteria. Aside from that, your school bus company should not have serious legal or tax problems.
This aspect of invoice factoring makes it an ideal source of funding for school bus companies whose growth opportunities are being held back by cash flow problems due to slow-paying invoices.
Get more information
We are a leading provider of factoring to school bus companies. For more information, get an online quote or call (877) 300 3258 to speak with an expert.
Marco Terry is the Managing Director of Commercial Capital LLC and has over two decades of experience in asset-based finance. He has worked with small and mid-sized companies across the United States, Canada, and Australia. Marco holds a Master of Science in Finance.