There comes a time when every HVAC business could use more working capital for things like making payroll, buying supplies, or taking on bigger or new jobs. It can be challenging for HVAC contractors to wait the 45, 60, or more days for customers to pay their invoices. And the economic climate over the past few years has made it hard for you to get a bank line of credit. Fortunately, HVAC contractors have another option – accounts receivable factoring. Factoring can provide relief to your business by giving you access to immediate working capital without your customer having to pay quicker than they normally would. Additionally, factoring allows HVAC contractors to consistently meet their payroll, pay vendors timely, buy supplies, and bid on more jobs they otherwise couldn’t.
How Factoring Works for HVAC Companies
Accounts receivable factoring can provide your business with a continuous source of operating capital, here is how it works. After becoming a client:
- You send your invoice to your customer and a copy to the factoring company
- The factoring company will send you up to 80% of the amount of the invoice
- The factoring company collects payment from your customer when the invoice is due
- The factoring company pays you the balance of your invoice amount, minus their fee
The Simple Benefit of Factoring over Bank Loans
If you go to a bank for a loan they will consider whether your company is financially sound, factoring companies don’t look at the size of your business, how long you have been in business, or your creditworthiness. In fact, factoring companies primarily look at the creditworthiness of your customers. If your business has a creditworthy commercial customer base with unpaid invoices, you can benefit from factoring.
Additional benefits of accounts receivable factoring:
- The HVAC business owner does not incur any debt as they are “selling” the receivable as long as their customer pays the invoice.
- You can take advantage of early payment discounts from suppliers, as the factoring company will often pay your creditors right away.
- You no longer need to offer early payment discounts because you are getting the payment immediately from the factoring company.
- The factoring company will do due diligence on your customers making sure they are creditworthy so, in turn, giving you often free professional credit monitoring of your clients.
- You can concentrate on building your business and making money instead of wasting your time worrying about when you are going to get paid.
Accounts receivable factoring may not be the first option you think of when thinking of a working capital solution for your HVAC business, but it can be the perfect solution when the bank says you are not a good fit. If you have specific questions about how factoring can benefit you, as an HVAC Contractor, making payroll, buying supplies, paying vendors, and keeping your business growing, reach out today. We would love to discuss factoring or other financial options!Back to blog