Quite a few small businesses that offer vehicle repair started out with regular car owners as customers. These people tend to pay cash or with a credit card immediately after the service has been rendered. Since you are able to get your money fairly quickly, you have enough cash for all your operational expenses.
But the problem starts when you start catering to large companies. Sure, it’s a good deal. You have a greater volume of business in your hands, and that means greater profits, right? Then you realize that these companies don’t pay immediately. Either they will expect you to wait for a month (or even 3 months for some companies), or they have their insurance companies pay you. And one thing you can expect from insurance companies is that while they’re very eager to accept premiums, paying out is a different matter altogether.
If you just started out as a vehicle repair company, then you must anticipate these things. However, it doesn’t mean you should just pass up the opportunity or get a loan for your cash flow needs. Your third option is to make use of the services of a factoring company that deals specifically with companies offering vehicle repair. By doing so you may actually improve your cash flow situation.
How Factoring Works for You
Let’s say you have a large invoice worth $50,000 due to you in 60 days. You then just submit the invoice to the factoring company. They then investigate the company who owes you the money and evaluate the likelihood that they will pay up. If they think that you have a solid company for a client, then the factor advances you a large chunk of the money owed to you. For example, they may give you $40,000 in a couple of days. Then the factoring company for vehicle repair deals with the company or the insurance company for the payments.
When the company or the insurance company finally coughs up the payment, you then get the remaining amount, although the factoring company will take a small cut to cover fees and charges.
What Can You Do with the Cash Advance You Received?
Of course, you should prioritize paying your workers and utilities, but with this kind of an advance you have a lot more possibilities. You can add to your inventory or provide new types of services for your customers. You can engage in more effective forms of marketing so that you can gain new customers. When another large order comes in, you can then be able to fulfill the requirements without having to take out a loan.
It’s so simple a process that many people in the business are using factoring companies extensively. If you can limit their services to just the bigger invoices, then you can limit your fees and maximize your profits handsomely.