How Underground Utility and Cable Installation Construction Companies Can Get Working Capital with Factoring
Read this article to learn how to obtain working capital for your underground utility or cable installation company.Running a construction company that installs underground utilities or over ground cables can be very profitable. Most of the times, the clients are top rates companies such as major utilities or cable operators. Although profitable, keeping enough working capital to meet payroll and other obligations can be challenging. Especially since cable companies and utilities tend to pay their invoices in 30 to 65 days. Few cable installers can wait that long to get paid. For starters, they need to meet payroll which is usually weekly or bi-weekly. Then, there are also suppliers that need to get paid.
Is getting a business loan the solution? Not always. First, getting business loans is particularly difficult in the current banking and credit environment. Second, although small business loans can be a great tool for business financing, they are not always the best solution to a problem. Let’s examine the situation in more detail.
Most cable installers, especially start ups or rapidly growing companies, run into the following situation. They get a lucrative contract to perform a job that stipulates that the installer can bill regularly, usually weekly, based on the length of installed cable. Now at the end of the week, the installer can bill the client but will also need to pay all of his employees. However, payment from the client will not come until the following month, so he will need to pay employees out of savings. Unless your business has a substantial bank account, sooner or later you will start turning projects down or you will run out of money.
But what would happen if your clients paid you in 2 days, rather than 2 months? Then you would not have these problems. You’d be able to run your business efficiently and grow it when new opportunities come by. Although you cannot make your clients pay sooner, you can achieve the same results by using invoice factoring.
Accounts receivable factoring provides a very simple proposition. As soon as the work is completed, you can sell the invoice to a factoring company. The factoring company buys your invoices in two installments. The first installment, called the advance, will cover about 80% of the invoice’s amount. The second installment, paid to you once the client pays for the service, covers the remaining 20% (less a small fee). A small fee is subtracted from the second installment to cover for the cost of the service.
One of the advantages of working with factoring companies is that factoring financing is much easier to obtain than conventional financing. Furthermore, the size of your financing line is tied directly to your sales and therefore grows with your business. This makes it an ideal solution for small and growing businesses.
Is getting a business loan the solution? Not always. First, getting business loans is particularly difficult in the current banking and credit environment. Second, although small business loans can be a great tool for business financing, they are not always the best solution to a problem. Let’s examine the situation in more detail.
Most cable installers, especially start ups or rapidly growing companies, run into the following situation. They get a lucrative contract to perform a job that stipulates that the installer can bill regularly, usually weekly, based on the length of installed cable. Now at the end of the week, the installer can bill the client but will also need to pay all of his employees. However, payment from the client will not come until the following month, so he will need to pay employees out of savings. Unless your business has a substantial bank account, sooner or later you will start turning projects down or you will run out of money.
But what would happen if your clients paid you in 2 days, rather than 2 months? Then you would not have these problems. You’d be able to run your business efficiently and grow it when new opportunities come by. Although you cannot make your clients pay sooner, you can achieve the same results by using invoice factoring.
Accounts receivable factoring provides a very simple proposition. As soon as the work is completed, you can sell the invoice to a factoring company. The factoring company buys your invoices in two installments. The first installment, called the advance, will cover about 80% of the invoice’s amount. The second installment, paid to you once the client pays for the service, covers the remaining 20% (less a small fee). A small fee is subtracted from the second installment to cover for the cost of the service.
One of the advantages of working with factoring companies is that factoring financing is much easier to obtain than conventional financing. Furthermore, the size of your financing line is tied directly to your sales and therefore grows with your business. This makes it an ideal solution for small and growing businesses.
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