Understanding Factoring for HVAC Contractors — When Is Right?

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 money to pay bills. However, solutions are available. Factoring for HVAC contractors can provide the financial stop-gaps needed to keep your projects on track and your business growing.

The Basics of Factoring

Factoring is a financing options that involves selling your accounts receivable to a company, like CapitalPlus, at a discount. This immediate cash influx helps cover expenses such as payroll, materials, and equipment, without waiting the 30, 60, or even 90 days for client payments.

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 to Other Funding Options

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

• Bank Loans: Require lengthy approval processes and collateral. Factoring provides immediate cash without adding debt to your balance sheet. 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 is based on your invoices, not 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. Learn more about other dangers of MCAs.

Specific Benefits for HVAC Contractors

Factoring for HVAC contractors in commercial construction offers specific benefits. The best way to illustrate this is to give you examples of two recent clients:

• Funding Material and Equipment Purchases: Because they did not yet have the long credit history favored by banks, this newly established HVAC contractor in Tennessee secured from us a $35,000 factoring facility to purchase essential materials and equipment. The funding ensured that they could accept new jobs without hesitation.
• Managing Growth: An HVAC contractor in New York, experiencing rapid growth was constrained by 60-day payment terms of many of its projects. secured a $100,000 monthly factoring facility from CapitalPlus. This ensured they could meet monthly expenses and continue expanding their business.

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!