Managing the working capital resources for a security guard company can be very challenging. The company needs to carefully manage the cash inflows and outflows to ensure that it always has the resources to cover operating expenses. One clear example of this is payroll. Most security guard agencies need to pay their employees on a weekly or biweekly basis. Most agency customers pay their invoices on net 30 to net 60 day terms. Companies that don’t have the resources to wait this long to get paid can run into working capital problems. One way to address this problem is to use invoice factoring
A factoring company advances funds to the security guard company and holds the slow paying invoices as collateral. This provides the security agency with the working capital it needs to meet payroll and other important expenses. The transaction settles once the end customers pay their invoices on the regular schedule. Most factoring transactions are structured as the purchase of an invoice in two installments. The first installment, which covers about 90% of the accounts receivable, is provided as soon as the work is invoiced. The second installment, which covers the remaining 10%, less the factoring fee, is advanced once the end customer pays the invoice in full.
Qualifying for invoice factoring is easier than qualifying for conventional loans. The most important requirement to qualify for invoice factoring is to have credit worthy commercial customers. This is critical because the credit worthiness of your customers is the collateral that the factoring company is relying upon. Aside from that, your security guard agency also needs to meet the following requirements:
- Your company must be free of legal and tax problems
- Your invoices and time cards need to be for completed work
- Your invoices need to be free and clear of liens and encumbrances
The factoring line is designed to be dynamic and can grow with your revenues, provided that your company meets the factoring criteria. To read more, please click here