Companies of all sizes can benefit from Line of Credit (LOC) financing, regardless of the industry in which they operate. One industry that faces unique challenges for cash flow is staffing and business services. These service-based business models rely on the consistency of their human capital and often do not have an extensive inventory of assets or other forms of revenue. This means any gaps in capital financing could be disastrous for a growing business in this sector. Making use of an Accounts Receivable (AR) LOC can provide an important lifeline for staffing and business services to ensure that critical business functions remain operational.
Bridging the Payroll Gap in a Growing Business
In a growing service-based business, payroll is often the largest and most important expense. While income can fluctuate and clients are sometimes late in paying, the same level of flexibility does not exist with payroll expenses. In a staffing business you may also experience different pay periods based on the nature of your relationship with your clients, which can add another layer of complexity.
The focus of a growing service-based business should be to even out the infrequency of income to cover regular expenses, and one of the best ways to bridge this gap is through an InterNex LOC. Typical advance rates for an LOC range between 70% and 90% of the outstanding invoice value, allowing you to access most of your outstanding revenue. Due to the revolving nature of LOC financing, you can confidently attract top talent and commit to future expenses while being confident that your bottom line is taken care of.
Benefits of Using an LOC for Operational Efficiency
The nature of the business services industry means that any operational downtime or payment delays could lead to significant operational inefficiency. Businesses that struggle month to month with uneven revenue can experience several cash flow stress points each month, leading to a negative spiral of late payments and stilted output.
Using an LOC will help you manage the highs and lows of irregular invoicing with a method that allows smoother, more reliable income over a period of time. One of the main benefits of LOC financing is speed. InterNex aims to return a proposal within 48 hours of a complete file, and once the facility is in place, draws are funded the same day. This prevents the administrative bottleneck that can occur while delivering important business services for clients on 30-day, 60-day or even 90-day payment terms.
Scaling your Business with a Line of Credit
Payment terms in general can vary with each business and can also be personalized to each vendor within a business so there is no one-size-fits-all approach. The most common payment terms in payroll and service-based businesses are 30-day, 60-day and 90-day invoicing terms. If you are looking to grow your business the expenses required for this are often on immediate payment terms. This leaves a significant gap of between one and three months where you may be trying to grow your business to a suitable stage to attract new clients, but are unable to access the funds required to do so.
Using the LOC facility as a revolving line of credit provides the opportunity for growth and investment in three distinct areas:
Vendor Management
Having early access to capital allows you to pay vendors and suppliers ahead of schedule, which is always appreciated, particularly for new and evolving B2B relationships. Building this level of trust with your vendors is a strategic advantage and allows more room for growth within these key relationships, leading to a more streamlined process for the provision of goods and services. Prompt payment can also lead to more favorable payment terms including cash-based discounts or preferable contract terms. Investing in vendor management will strengthen your position within the supply chain and help you to grow a reputation for being a reliable partner in your respective industry.
Customer Acquisition
Investing in large scale marketing campaigns can significantly shorten the time needed to find new clients and attract wider attention to your services. These campaigns often involve high upfront costs for research, branding and creating digital assets. Funding these campaigns can be controlled more effectively with a revolving LOC as it allows you to take advantage of opportunities as they evolve. Things can move fast in the attention economy, and firms who have to wait several months to fund new product campaigns can miss out on a distinct early-mover advantage.
Market Expansion
Expanding into new markets or strengthening your presence in existing markets can often involve high upfront costs. As well as marketing expenditure, market expansion often requires additional expenses such as a larger Head Office, increased travel and conference costs or the commitment to a strategic increase in headcount. Being able to confidently commit to these expenses without having to wait for payment of outstanding invoices can shorten the time to achieve increased market share and drastically accelerate your growth.