Last Updated on October 12, 2023
Security guard companies are unique. Unlike many industries in which assets lie in the name of equipment, land, or other physical resources, security guard companies’ biggest assets are their people.
This makes financing security guard companies particularly challenging for two reasons. First, most traditional bank loans are unattainable without significant collateral, and a security guard business likely doesn’t have the amount of potential collateral that a company in another industry, such as construction or manufacturing, might possess. Also, making payroll can be stressful when such a large part of your business’ capital is dedicated toward paying employees. This makes cash flow management that much more impactful for security guard business owners.
Fortunately, invoice factoring helps security guard businesses solve both of these potential obstacles.
Continue reading to learn how security guard factoring works, the benefits of factoring, and how your business can use your cash advance from invoice factoring. You may discover that factoring is the right option to help finance your security guard company.
What is Security Guard Factoring?
When you factor your security guard company invoices, you are selling unpaid customer invoices to a third-party factoring company in exchange for a cash advance.
Security guard factoring is an alternative financing method that security guard businesses use when slow-paying customers result in cash flow problems. Even companies that have customers who pay on-time utilize factoring in order to improve working capital.
How to Sell Security Guard Company Invoices
Invoice factoring can be seen as a four-step process that is aimed to boost cash on-hand for companies that need it most. Let’s take a look at how those four steps work for altLINE’s clients.
1. Send Us the Unpaid Accounts Receivable That You’d Like to Factor
After you’ve provided a service or product and invoiced your client, you will submit that invoice to altLINE for factoring.
2. altLINE Provides a Cash Advance
Once we’ve received your outstanding accounts receivable, we advance anywhere from 80-90% of the invoices directly to your business’ bank account.
3. Your Customers Submit Invoice Payments to altLINE
Your debtors, or clients, submit their payments to altLINE, rather than your business, which go into a lockbox in the seller’s (your business’s) name.
4. Remainder of the Invoice Value Is Released to Your Business – Cash Unlocked!
Once altLINE receives and processes a customer’s payment, we release the remainder of their invoice value (10-20%) to your business’s account, minus a small factoring fee.
Benefits of Invoice Factoring for Security Guard Companies
Once you’ve started your security guard company and begin drafting your security guard business plan, you’ll likely find gaps where a bank loan or alternative financing method can assist with funding certain elements of your business. Invoice factoring is a common solution for businesses looking to ease their accounts receivable workload and accelerate cash on-hand.
Here are a few of the most notable benefits of invoice factoring for security guard companies:
Immediate Access to Working Capital Without Sacrificing Assets
Unlike many traditional bank loans, invoice factoring allows business owners to access cash fast and without collateral. This is one of the reasons factoring is particularly attractive to small business owners or startups who may not have the assets or equity required to qualify for other bank loans.
Invoices Paid Within Days, Not Months
With security guard factoring, a third-party factoring company such as altLINE fronts 80-90% of an invoice, allowing security companies like yours to instantly unlock capital within days of invoicing a customer. Even if your customer doesn’t pay the invoice immediately, you still receive that capital thanks to the cash advance. This makes a huge difference for businesses operating on tight budgets.
More Predictable Cash Flow
According to Intuit, not getting paid on-time is the No. 1 issue for small businesses.
Security guard factoring allows for more predictable cash flow compared to the traditional accounts receivable process. This allows business owners to feel more comfortable when planning cash budgets.
Lessened Impact of Slow-Paying Customers
Slow-paying customers can cause significant issues for any security guard business, especially since so much of your revenue is directed toward employee payroll. If one customer who accounts for a large part of your ledger fails to abide by your predetermined payment terms, that alone could prevent you from having the funds to pay your employees on-time.
Invoice factoring ensures that even if a customer fails to meet payment terms, your business’ working capital won’t be affected.
Uses For Your Security Guard Business Factoring Cash Advance
There are many projects or areas where business owners utilize the cash advance from invoice factoring. Different businesses have different urgent needs to address, but below are some of the most common uses for an invoice factoring cash advance.
Meet Payroll Obligations
Security staff are the engine that keeps your security guard business running. Keeping their morale high is vital for business owners who want to maintain smooth operations.
The cash advance from invoice factoring can go toward paying your employees, ensuring long customer payment cycles won’t affect your payroll.
Just as a cash advance can provide you relief for paying current employees, it can also allow you to focus on business growth, putting your mind at ease about any potential AR cash flow problems.
More cash on-hand provides an opportunity to hire more staff, which is another way to improve employee morale as more staff can mean a lessened workload for each employee.
Pay Operating Expenses and Overhead Costs
When business owners are planning documents that detail future expenses, it’s difficult to predict exact costs such as operating expenses and overhead costs. Equipment breaks, contracts fall through, and IT issues arise – these are inevitable costs that every business owner should expect to deal with at some point but costs they may not know how to quantify.
A factoring cash advance can be put toward covering these frustrating, unpredictable costs, reducing your budgeting stress.
Typical Security Guard Factoring Rates and Fees
Factoring companies typically charge two fees for invoice factoring:
1. Initial Fee
2. Incremental Fees
The initial fee is what your business will be charged up front. This is usually between 0.90% and 3.50% of the invoice’s value, and it covers the factor’s invoice processing expenses.
Incremental fees range from 0.25% to 1.50% of the invoice’s face value and are added to the initial fee. These fees compensate the factoring company for holding your unpaid invoice over time.
Combined, these fees encompass the “factoring fee”. As you can see, factoring fees range from about 1-5%, depending on the business.
To see what this looks like in action, take a look at the following example:
You receive an initial fee of 1.5% and an incremental fee of 1% with the following tiered fee structure:
|0 – 30 days||1.5%|
|31 – 45 days||2.5%|
|46 – 60 days||3.5%|
|> 60 days||4.5%|
With this structure, more incremental fees are added to your initial fee the longer your invoices remain outstanding. To illustrate:
- You would only pay the initial fee of 1.5% and no incremental fees, if your customer were to pay the outstanding invoice within the first 30 days.
- You would have to pay the initial fee plus the first tier of the incremental fee (for a total of 2.5%), if your customer were to pay the outstanding invoice within the first 31 to 45 days.
- You would have to pay the initial fee plus two tiers of the incremental fee (for a total of 3.5%), if your customer were to pay the invoice between days 46 and 60 of it being outstanding.
Know that invoice factoring rates and fees vary by business. Some components that a factoring company will take into consideration include:
- Your business’ gross monthly sales
- What percent of your ledger you plan on factoring
- The creditworthiness of your customers
- Your customers’ payment histories
For example, if you plan on factoring your entire sales ledger, your customers generally have high credit, and they have a history of paying within the invoice payment terms, you can expect lower rates and fees than businesses that barely meet qualifications to factor.
Get Your Invoices Paid Faster with altLINE
Factoring companies such as altLINE want to see small to medium-sized businesses succeed and assist in doing so by helping boost cash flow. We don’t want the thought of slow-paying customers to make you resistant to starting or growing your security guard company.
If you think your security guard business could benefit from invoice factoring, fill out our online factoring quote form or give us a call at (205) 607-0811. We have factored over $1B in invoices and take pride in helping our customers reach their business goals.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.