Invoice Factoring for Commercial Cleaning Businesses
As the need for infrastructure improvement grows, so does the opportunity for companies involved in facility management, now a $1.12 trillion industry according to a study from the International Facility Management Association, IFMA.1 A major part of this industry are commercial cleaning businesses.
Despite the name, these businesses do more than just clean. While the emphasis may be on janitorial duties including carpet, floor and window cleaning, commercial cleaners handle dozens of other tasks ranging from solid waste management and construction cleanup to snow removal, painting and pressure washing. These companies strive to offer these services in as safe and sustainable method as possible. The rapid adoption of ‘smart buildings and cities’ is a testament to this.
Invoice Factoring for Commercial Cleaning Businesses
While potentially lucrative, the nature of commercial cleaning also lends itself to cash flow shortages, especially for the smaller players. Many must offer credit sales to larger commercial customers or government agencies in order to win jobs. They begrudgingly agree to net 60 or even net 75 terms in their contracts.
As such, many cleaners don’t have adequate cash on hand to make payroll, maintain equipment or take on new jobs. In short, this hampers their ability to run their business efficiently and productively. But there is a solution- invoice factoring.
Selling off your unpaid invoices to a third party buyer (a factoring company) unlocks the funds that are tied up in your accounts receivable. Once your initial application is approved, the money can be wired into your account the same day.
Compare that to the traditional small business loan process which can take weeks or even months to complete. So if your commercial cleaning, power washing or painting business is experiencing cash flow problems consider factoring invoices.
If you have been denied a loan by your local bank due to bad credit, you still have small business funding options. With accounts receivable factoring, the credit worthiness of your clients matters more than your own credit. This is because the invoice factoring companies will be collecting from the late paying account debtors, not you! Keep in mind that many factors won’t factor invoices that are past 90 days old due to the higher probability of default. These receivables are typically handled by traditional debt collectors.
Don’t Give up Equity Ownership
When credit dries up, funding becomes a major challenge. Many investors want valuable equity in your business in exchange for funding. We have seen some greedy private equity firms ‘recapitalize’ service businesses- including janitorial.2 They realize the commercial cleaning businesses have an inherent need for interim financing from larger commercial clients who have agreed to credit terms of up to 60 days.
But the great thing about invoice factoring is that it provides same day funding without having to cough up equity in your company.
Consider Non Recourse Factoring
It’s also important to look for invoice factoring companies that offer non recourse factoring. Under this arrangement, the factor takes on the risk of the account debtor defaulting due to a credit issue. Some of the traditional clients include fitness centers, restaurants and office buildings.
These businesses have been cyclical in nature and with a potential commercial real estate bubble on the horizon, it might make sense to consider non recourse factoring. This agreement transfers the credit risk of default onto the factoring company. This makes sense for smaller commercial cleaners that may have one or two main clients and can’t afford for them to go belly up.
Invoice financing allows you to focus on running your business while an invoice factoring company handles all the credit and collection services. If your business has receivables that are less than 90 days old, are free of liens and has no IRS tax problems, request a free factoring quote today.