How To Finance A Linen Rental and Service Company

Linen rental and service companies that work with hotels and restaurants are usually very familiar with the industry practice of offering customers up to 45 days to pay an invoice. While this practice is common, it’s not easy for linen rental and service companies to offer terms and operate effectively at the same time.

Unless the company has adequate capital reserves, it will experience cash flow problems. In some cases, these problems affect the company’s ability to operate smoothly. In other cases, they prevent the company from taking on new customers (who also demand payment terms).

Improve your cash flow by asking for quick payments

One simple way to solve this problem is to ask customers – hotels and restaurants – for quick payment. Needless to say, this is easier said than done. Some hospitality customers may agree to pay their invoices quickly if you give them a 2% discount. Although this strategy can help improve cash flow, it’s not always reliable as customers can change their minds at any time. This situation is common with restaurants, who often manage their cash flow very carefully.

A simple solution – receivables financing

For many companies, a better solution is to factor their invoices. This solution can provide most of the benefits of quick-paying customers without actually requiring customers to pay any sooner. Factoring solves this problem in a very simple way: a factoring company provides funding for open invoices — using the invoices as security for the transaction. This approach provides an instant injection of working capital that can be used to cover immediate business expenses. A receivables factoring line eliminates the need to wait 60 days to get paid by clients, as invoices can be financed whenever funds are needed.

Also, using factoring financing on invoices provides predictable revenues, creating a stable platform that can be used to grow the business and secure new clients.

Works well with linen rental companies

One advantage of using invoice factoring for linen rentals companies is that the process is fairly easy. After setting up an account, you send an invoice to a client and a copy of the invoice to the factoring company. The factor then advances funds to your company in two payments:

  1. The first payment is for 80% of the value of the open invoices. This amount is transferred to your account as soon as the work/product is completed and delivered.
  2. The second payment is for the remaining 20% (less funding costs) of the invoice(s) and is transferred to your account once the customer pays the invoice(s) on their usual schedule.

The objective of this transaction structure is to simulate quick customer payments. For more information, please read “What is invoice factoring?

Getting an account is simple

Most factors are accustomed to working with small companies, so getting a factoring company account is relatively simple. Factors require simple collateral: you must have invoices that are paid by creditworthy commercial or hospitality clients.

This requirement is very important since the invoices secure the transaction. For example, large hotel and restaurant chains are usually considered ideal customers since they tend to be good payers. It’s also expected that your company be well run, has invoices that are unencumbered by liens, and has good billing practices.

Getting an account starts by submitting an request and takes five to ten days. If you plan to submit a factoring application, be sure to read “Factoring application mistakes to avoid“.

Advantages of receivables financing

Most accounts receivable factoring lines are well-fitted for entrepreneurial linen rental companies experiencing rapid growth. The line is relatively flexible and can increase as a company and operations grow — a feature seldom found in other business financing products. Consequently, accounts receivable factoring is an attractive option for growing linen rental and service companies that are suffering growing pains due to slow-paying customers.

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.