How to Finance Service Companies: Methods, Solutions, and Programs
Liquidity from credit facilities is key to financing service companies and helping them to keep payroll flowing while waiting for receivables to be collected.
As an asset-based lending company, people may tend to think of Accord when financing capital intensive industries such as manufacturing but we are equally capable of financing service companies.
Operating your Service Company in Today’s Economy
The service industry in Canada and the US has been experiencing an important period of growth. From consumers to businesses, all players in the economy are consuming a larger amount of services. In fact, the service sector now accounts for 80% of economic output in the US and over 70% in Canada, providing an excellent opportunity for service companies.
As most services companies are not capital intensive, you don’t have to make major investments in long term assets such as plant and equipment. This benefit allows you to be nimble and respond quickly to changes and opportunities in the marketplace. Additionally, when looking to finance your service company you do not have to get caught up in the complexities of financing equipment or other major capital expenditures that require long term plant finance arrangements. This benefit means that you have the ability scale up your service business very quickly as opportunities presents themselves.
Managing HR challenges in a growing service company
However, service companies have a unique set of challenges, the key one being people management. We’ve all heard some variation of the line “people are our key asset”. Therefore, you must invest a large amount of resources in attracting, training and retaining your key people in the service industry. In today’s high-tech environment the competition for human resources has gone global. A programmer or writer can live in Europe or Asia and work for a locally based service company just as easily as one based in North America. So you may be competing for staff, not just with the service company down the street, but also with someone based on another continent. With innovative strategies and establishment of a strong and positive culture, service companies of all sizes are able to develop strong recruitment strategies that allow these growing service companies to keep pace with their staffing requirements.
Options to finance your service company
Another challenge for service companies is financing their growth. Being in growth mode means you need to finance your service company so that your financing can keep up with you. The primary cost at most service companies is labor, which is often paid weekly. However, it can be a challenge to match your incoming cash flows to these weekly expenses. This is where a flexible financing for your service company becomes critical. The work that you are doing for your customers may only be billable on a monthly or semi-monthly basis or perhaps only at the end of a project. Once the invoice is issued, you may still have to wait 45-60 days for the customer to make the payment. This means that your service business may have to finance as much as three months’ worth of payroll before receiving any cash flow from your customers.
The options to finance service companies in such a situation are somewhat limited. As service companies typically do not have a significant amount of tangible long-term assets, traditional financing such as equipment finance, plant finance or real-estate finance are generally not options. Additionally, you may not be able to finance service companies adequately with a line of credit from a bank because a young growing service company will likely not have the track record needed to meet a bank’s requirements. Another alternative to finance service companies in this situation would be to raise equity, however this means giving up a share in your business, its future profits and the decision making in your business. This is a very high price for you to pay in order to find a solution to finance service companies. An option to finance service companies that is often overlooked is to turn to asset-based lending. Understandably, it is not a natural reaction to look at asset-based lending to finance service companies because, service companies typically do not have significant tangible or long-term assets. However, a growing service company will often carry a large amount of accounts receivable which can be used to finance service companies with an asset-based lender such as Accord.
Asset-based lending: a solution to finance your service company
At Accord, we often finance service companies by providing them with an accounts receivable financing facility, which allows you to borrow up to 90% of your receivables. This enables us to finance your service company in a manner that keeps up with your growth. When financing your service company, our accounts receivable facilities will fluctuate in tandem with the changes in your receivables, without any restrictive covenants or ratios that limit your ability to borrow under the facility. When we finance service companies in this manner, you are able to put your worries about cash flow behind you and focus in on managing your business; knowing that whenever you issue invoices you can be assured that Accord will immediately provide you with the necessary funding to cover your payroll and other critical operating costs.
Accord has experience financing service companies in a variety of industries including:
- Temporary personnel agencies
- IT training
- Oilfield services
- Promotion / loyalty marketing
We are dedicated to understanding the unique needs and challenges of your service company—this ensures that our comprehensive financing solutions are delivered specifically for you and your industry.
SERVICES FINANCING FAQ
Service company financing refers to any variety of financing solutions for service companies. If you need financing for your service business, accounts receivable financing from Accord is a great way to access additional capital to help your business grow.
Your service company can get financing from Accord for a wide variety of industries, including:
- professional services (legal, IT, accounting, financial, administrative)
- staffing companies (healthcare, security, janitorial, cleaning)
- public services (medical, hospitality, plumbing, repair, funerals)
Payroll financing provides funding to your service company so that you may pay invoices as well as make payroll on time. This is particularly relevant if you are a staffing company, as quite often staffing companies can support substantial revenue growth by using accounts receivable financing or factoring.
If your staffing agency (or other service company) hasn’t received payment from a client, but needs to make payroll for your employees, payroll funding provides an advance based on the receivable from your client.
Factoring (or accounts receivable financing) is commonly used as payroll funding for staffing companies in these situations.
When looking for fast service company financing, you need to turn to a financial company that will work at the speed of your business to quickly structure and fund your financing needs.
At Accord, financing for staffing agencies and other service companies is often approved in as little as a few weeks.
Invoice factoring provides the money for the services you provided 30 days or more in advance of your typical A/R cycle. This advance provides additional working capital that will allow your staffing company to hire and deploy more employees or take advantage of other growth opportunities.
Do you want to know how fast you can start with invoice factoring for your staffing company? Call now: +1-844-932-9940 (Canada) or +1-844-725-4225 (US)!
Yes! Factoring is an efficient payroll funding tool to help your small business or startup staffing company increase cash flow. By utilizing payroll funding, your business can outsource the administration of your accounts receivable and free up cash to invest on more strategic company objectives.
Call us to learn how you can take advantage of payroll funding for your small business or startup: +1-844-932-9940 (Canada) / +1-844-725-4225 (US)
Payroll factoring involves the transfer of your accounts receivable to a factoring company, whereas you can also fund your payroll by payroll funding through an operating line of credit, asset based lending or other type of financing.
When compared, factoring companies can offer services including credit guarantees and can administer the accounts receivable on your behalf, services that may not be offered with payroll funding.
When looking for a company to provide you with payroll funding services, you will want to find a lender who:
- is responsive,
- listens to your specific needs, and
- provides a financing solution customized to suit your business.
Accord has a track record of successfully financing companies similar to yours. Visit our recent transactions to see some of the deals that we’ve funded, or read about what our clients have to say about us in our client testimonials.