Understanding Factoring for HVAC Contractors — When Is It The Best Option?

The seasonal “feast or famine” job cycle of the HVAC industry means they are likely juggling multiple projects with different payment schedules. This makes managing daily working capital a challenge, especially for smaller HVAC businesses. In fact, according to AC/Heating/Refrigeration News, the biggest reason that HVAC companies fail is a lack of cash flow to pay bills. However, factoring for HVAC contractors offers a fast, flexible solution to these financial challenges. Commercial HVAC factoring can provide the financial stop-gaps needed to keep your projects on track and your business growing.

The Basics of Factoring

Factoring is a financial options where you sell your accounts receivable to a company like CapitalPlus. This immediate cash influx helps cover expenses such as payroll, materials, and equipment, without waiting the typical 30, 60, or even 90 days for client payments. Invoice factoring for Mechanical contractors is particularly useful in covering just about any cash flow gap that arises while waiting on your client.

How Factoring Works for HVAC Companies

The accounts receivable factoring process is a relatively simple process:

• Client Application/Approval: The process starts with a phone meeting to discuss it your company is a fit for the service. If so, you will become an official client.
• Send invoice: You send your invoice to your customer and a copy to the factoring company.
• Receive advance: The factoring company sends you up to 80% of the invoice amount.
• Collection: The factoring company collects payment from your customer when the invoice is due.
• Remaining payment: The factoring company returns to you the remaining balance of the invoice amount, less any fees.

Comparison of Factoring to Other Funding Options

Factoring offers several advantages over other funding options for the HVAC business:

• Bank Loans: Require lengthy approval processes and collateral. Invoice factoring provides immediate cash to your HVAC company without adding debt to your balance sheet.
  — RELATED READING: Learn why bank loans are so hard to get in construction.
  
• Lines of Credit: Can be difficult to qualify for, especially for newer businesses. Factoring relies on your invoices, not solely your credit score.
  
• Merchant Cash Advances (MCAs): Often come with high fees and potentially dangerous daily repayment schedules. Factoring is more cost-effective and aligns with your accounts receivable cycle.
  — RELATED READING: Learn more about other dangers of MCAs.

Specific Benefits for HVAC Contractors

Factoring for HVAC contractors offers specific benefits to both new and established companies. And in the past 25+ years we have seen many situations that has arisen for HVAC contractors that required an alternative financing solution like factoring. Here are three real-world examples:

• $300,000 Payroll Support: In May, CapitalPlus advanced $300,000 for a client fabricating and installing HVAC units for a large village square project in New York City. This funding allowed them to pay their workers and stay on schedule.
• $35,000 Equipment Purchase: A commercial HVAC contractor from Tennessee received $35,000 in funding for materials and equipment, enabling them to confidently take on their next project without worrying about cash flow.
• $2,000,000 Monthly Facility: In California, this HVAC contractor secured a $2,000,000 factoring line that helped them meet their Union dues, vendor payments, and weekly payroll. This partnership has grown into a long-term relationship strategically supporting their business for over three years now.

Why CapitalPlus is the Best for HVAC Contractors

Accounts receivable factoring may not be the first option you think of when looking for working capital, 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 that can support your HVAC business!