Summary: Cellular tower construction and maintenance companies often work with large wireless, broadband, and digital service providers. They often deal with cash flow problems because customers pay their invoices in 30 to 60 days.
Factoring solves this financial problem. It allows you to finance your invoices and obtain immediate working capital. This article explains how factoring works, its advantages, and its challenges. It covers the following:
- Offering 30-day payment terms affects cash flow
- Improve cash flow with invoice factoring
- Advantages
- Telcom industry-specific challenges
- Does your company qualify?
- Is factoring right for you?
1. Do you offer net-30 terms to clients?
Most cellular tower erection and maintenance companies typically work with midsize and large customers. Customers can range from direct service providers to larger cell tower maintenance companies (general contractors) that provide the service to the provider.
In most cases, you must give the provider or the general contractor 30 to 60 days to pay their invoices. Offering these payment terms is common in the industry and is usually not a problem. However, these terms can create financial problems for some cell tower construction companies.
a) Your cash reserve matters
Offering payment terms affects companies that don’t have an adequate cash reserve. They may be forced to delay paying vendors, certain expenses, or even payroll. This situation can lead to serious cash flow problems if not addressed quickly.
The simple way to fix this problem is to use financing to bridge the cash flow gap. Unfortunately, most small and midsize tower erection and maintenance companies can’t qualify for a business line of credit. The alternative in this scenario is to use invoice factoring.
2. Improve cash flow with invoice factoring
An invoice factoring line works much like a line of credit secured by accounts receivable. Your company gets an advance on accounts receivable due from customers with good business credit. The advance provides liquidity to operate the business, pay suppliers, and take on new clients.
The transaction is done in two installments. The initial installment advances 75% to 85% of your A/R and is deposited shortly after financing the invoice. The advance percentage is determined by the details of your transaction.
The remaining 15% to 25%, less the cost of factoring, is deposited to your account once your customer pays the invoice in full. Companies can use factoring as often as needed. This strategy improves your working capital and provides financial stability.
Go deeper: To learn more, read “How Does Invoice Factoring Work?”
a) Construction or conventional factoring?
Cell tower construction companies that use progress billing will need to use construction factoring instead. Construction factoring is a specialized form of factoring that can handle more complex forms of billing.
3. Advantages
Factoring lines have several advantages over other solutions of comparable size. These are the four most important benefits.
a) Improves cash flow quickly
The most important advantage of a factoring line is that it improves your cash flow quickly. This feature is essential for cellular tower erection and maintenance companies that need immediate funds.
b) Offer 30-day terms to clients
A factoring line allows you to offer net-30 or longer terms to clients with good business credit. You always have the option to finance the invoices if your company needs funds.
c) Simple qualification requirements
Factoring lines have simpler qualification criteria than lines of credit and other solutions. This makes factoring a great alternative for small and midsize companies.
d) Grows with your revenues
The line can grow as your revenues grow because it is tied to your invoices from quality customers. Qualifying for a line increase is usually simple and can be done in a day or so.
4. Cell tower construction challenges
Finding the right factoring solution may be somewhat challenging for companies in the cellular tower maintenance industry. There are four concerns you may have to handle.
a) Need to find a specialized factoring company
Finding financing companies in this area of the telecom industry can be challenging. You need to find a factoring company with experience and that is comfortable with the tower construction industry.
Go deeper: Read “How to Find the Right Factoring Company?”
b) Progress payments
Companies that offer progress billing will need to find a construction factoring company that can handle them. Most factoring companies finance invoices only after the project is completed. However, some specialized companies can finance projects that are billed in stages.
c) Pay-when-paid clauses
Maintenance companies that work as a subcontractor of a larger company with a master contract may have to deal with so-called “pay-when-paid” clauses. These clauses allow the company with the master contract to pay you only after the provider has paid them. Unfortunately, factoring companies are unable to finance invoices subject to this clause.
d) Mobilization capital
Unfortunately, factoring companies do not provide mobilization capital. They can finance invoices only for completed work or work segments.
5. Does your company qualify?
Qualifying for a factoring line is simpler than qualifying for a line of credit or most bank financing. Companies usually must meet simple criteria, which include:
- Customers must have a good business credit
- Invoices must not be encumbered by liens
- Taxes must be up to date (or have a plan)
- Company must have good billing processes
6. Is factoring the right solution for your company?
Factoring is designed to help solve a single cash flow problem. It can help companies that have:
- Cash flow problems that are due to slow-paying invoices
- Reasonable margins
- Invoices that pay in 30 to 60 days
Factoring is unlikely to help companies with other problems, such as profitability issues. Speak to a CPA or similar professional if you are unsure whether factoring can help you.
Get more information
We are a leading factoring company and work with cellular tower maintenance companies. For more information, get an online quote or call us toll-free at (877) 300 3258.