Do you feel like managing cash flow for your security company is an uphill battle? It’s not you. It’s the nature of the business. An average of 119 days passes from the time a security services company extends credit until payment is received, according to Risk Concern research. This is one of the longest payment gaps seen across all industries. Meanwhile, wages, which are often paid weekly or bi-weekly, account for nearly two-thirds of expenses, per IBISWorld. The mismatch between this significant, yet crucial expense, and incoming client payments, makes managing cash flow very difficult. Most businesses, especially small and growing firms with limited reserves, need an occasional injection of working capital to make ends meet. That’s where invoice factoring for security companies comes in. It provides you with instant cash without putting your business in debt. Give us a few minutes, and we’ll walk you through how it works and the benefits.
Types of Security Guard Companies That Benefit from Factoring
There are more than 11,000 security services businesses in the U.S., and the number has been steadily climbing for years, IBISWorld reports. Most qualify for and can leverage invoice factoring. This includes, but is not limited to:
- General security service companies
- Security guard patrols
- Event crowd control
- Bodyguards
- Armored cars
- Corporate investigative service companies
- Polygraph firms
- Private detectives
How Invoice Factoring Works for Security Companies
Invoice factoring, also referred to as accounts receivable factoring, is a unique cash flow solution that works differently than loans, lines of credit, and other traditional financing methods. Rather than borrowing a lump sum that your business pays back with fees and interest, your business receives advance payment on B2B invoices from a factoring company or factor.
Invoice Factoring Process for Security Companies
Although each factoring company is different, the factoring process usually involves the steps below.
- Send Your Team to Work: Fulfill your client obligations as usual.
- Invoice: Bill your client using your standard process.
- Factor: Share your proof of invoicing with your factoring company. In some cases, employee time logs are sufficient, though a detailed invoice is typically required.
- Receive Payment Instantly: Your factoring company purchases the invoice from you and immediately sends you most of the invoice’s value. If you work with Charter Capital, you can even receive your cash on the same day you submit your invoice.
- Move Forward: Keep doing what you do best. Your factoring company will follow up with your client as needed and collect the balance.
- Receive Final Sum: Once your client pays the invoice, you’ll receive the final payment minus a small factoring fee. There’s nothing for your business to pay back.
Invoice Financing vs. Factoring
Sometimes, people use the phrases “invoice financing” and “invoice factoring” interchangeably. However, they are different types of funding. Invoice factoring involves selling your invoices and doesn’t create debt. Invoice financing involves taking out a loan and using your invoices as collateral. You’re responsible for paying the balance back with fees and/or interest.
Benefits of Invoice Factoring for Security Companies
Because factoring works differently than other business funding solutions, it also benefits your security firm in different ways.
Improve Financial Stability and Cash Flow Management
Factoring takes the guesswork out of when you’ll get paid, so it’s easier to forecast your finances and make decisions before a cash flow crunch.
Boost Cash Flow as Needed
Factoring is flexible. You choose which invoices to factor and when to factor them.
Bridge Payment Gaps
You can use factoring all the time or just as needed to bridge customer payment gaps or address emergencies.
Meet Operational Expenses
Factoring provides you with cash instantly, so it’s perfect for urgent needs like covering payroll.
Business Growth Opportunities
All too often, small businesses are forced to turn down work because they don’t have the capital necessary to accept a new client or large request. When you’re set up with a factoring company, you can accept contracts with confidence and grow.
Invest in New Equipment and Technology
Working capital is vital to any process, whether you’re trying to boost operational efficiency, improve team safety, or strengthen client communication. Factoring can provide it as needed.
How to Choose an Invoice Factoring Company
Choosing a factor is a little different than selecting a financial institution for a loan. The terms you’re likely to come across are unique as well. Keep the following things in mind as you make your selection.
Fees and Rates
The primary expense of factoring is the factoring fee, which is set with a factoring rate. This is the percentage of the invoice’s value retained by the factor as payment for its services. This is usually between one and five percent of an invoice’s value.
As you connect with factoring companies, confirm the rate you’re being offered is competitive, but don’t necessarily go with the lowest offer. Factors that underbid others by a wide margin may do so by cutting corners and reducing services that might otherwise help your business grow.
Contract Terms
Review the contract terms to see if they align with your expectations. Some factors require that you stay with them for a period of time or meet specific volume requirements.
Reputation
Vet the factoring company’s reputation before moving forward. Find out if it’s a member of a professional organization that holds it to high professional and ethical standards. For instance, Charter Capital is a member of The American Factoring Association, Secured Finance Network, The International Factoring Association, and The Houston Hispanic Chamber of Commerce.
Industry Specialization
Some factors are generalists, while others specialize in supporting specific industries. Someone who specializes in your industry will understand your business better, so you’re more likely to receive favorable terms. They can also provide you with additional guidance about your business and may be able to connect you with other companies that can support your growth goals.
Get Started with Specialized Factoring for Security Companies
Charter Capital specializes in factoring for security companies. As America’s leading invoice factoring company, we bring more than 20 years of experience to the table, offer competitive rates, and are committed to helping our clients thrive. To learn more or take the next step, request a complimentary factoring rate quote.
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