How Field Service Companies Can Solve Cash Flow Problems
- April 2, 2019
- By: Vonigo
We all know how important cash flow is for field service companies.
A steady stream of income that’s more than enough to cover expenses is what helps us stay in business – it’s what makes our businesses function. When cash is flowing in, all is well. Clients are paying on time, there are no unexpected expenses, and stress is at a minimum.
But for field service businesses, cash flow gaps do happen. Once in a while, that predictable income can slow to a trickle or stop altogether. Bills pile up and panic sets in.
The Causes of Cash Flow Gaps
Especially with commercial customers, it’s not always easy to know exactly when a client’s payment will arrive, even with an easy-to-use payment process. It’s hard to decide when to buy more materials or equipment or bring on new team members when you can’t pin down the day that cash will arrive from your biggest client. Some companies pay in 30 days, but more often it’s 45 or even 60 days before a cheque is cut.
Cash flow gaps happen to businesses in all industries, and service businesses are not immune. Even though you don’t have to stock up on a lot of inventory in order to make sales, your expenses are very real and often unrelenting.
Another challenge is that you may not have the clout to force a client to pay up when a bill is due. If you’re a service provider with an ongoing client, you have more leverage than most — you can choose not to hand over your next deliverable until the last one is paid for. It’s a hard line, but sometimes it’s the call you have to make to get paid on time.
Whether your company relies on vehicles, or machinery, or even just cleaning products, some of your equipment is liable to break down just when you need it most.
To avoid compromising your business, you’ll want to replace equipment as soon as you can, and that may be before you’ve received payment from an account. Spending to replace essential equipment or a new vehicle can result in a cash flow gap.
Ramping Up for Larger Contracts
In order to grow your business, you may purposely get in a little over your head.
If you want to make a leap from small projects to big ones, you’ll need to devote some of your dollars to ramping up. To throw your name in the hat for a new type of contract, you may need more personnel or employees with different skills. There may be equipment or security requirements that’ll cut into your cash. This kind of spending is certainly considered an investment in your business; still, spending money to make money is another common cause of cash flow gaps.
What to Do to Avoid Cash Flow Gaps
The first thing you can do is to bill promptly – as soon as you’ve completed your service. Get that invoice into the hands of accounts payable— and you’re more likely to receive payment sooner. If you can accept payment on-site, that’s your best chance to keep the cash flow gap as short as possible.
When invoicing, be sure to include a payment due date on your bill. Some people prioritize bills by due date, so get yours to the top of the pile by asking to be paid in 15 days, for example.
Some businesses offer an early-pay discount of 1 to 3 percent if payment is received in 10 or 15 days. Not everyone will take advantage of such an offer but it can’t hurt to point it out. People and businesses will be more likely to expedite your payment if there are potential savings offered.
A Backup Plan
If all of the above still doesn’t work, consider getting a working capital loan or line of credit to help you even out the cash flow ebb and flow. Having a cash reserve to turn to can help ensure you always have cash on hand to make payroll and cover the rest of your operating expenses. You can also opt to explore invoice factoring to help you close any significant gaps.
Getting Free of a Cash Flow Gap
You already know you want to avoid cash flow gaps. If, despite your best efforts, you’ve ended up in the midst of a cash flow gap, here are some remedies:
- Talk to your suppliers about extending your payment due date, to reduce the pressure you’re feeling to come up with cash you don’t have.
- Contact clients and ask if they can pay you immediately via credit card. Field service management software allows you to collect such payments instantaneously on-site or online, though there are processing fees.
- Apply for a loan from a business lender, to get that working capital reserve in place.
- As a last resort, look into factoring, which involves selling your overdue bills for a fraction of their worth. It’s an expensive alternative, but it can yield quick cash.
Nearly all field service businesses face cash flow gaps at some point. It’s a reality–and often, it’s for a good cause: growing your business.
The more you can do to prepare for the next one, the less of an impact any gap will have on your operations.
Want to learn more about how to solve cash flow gaps in your service businesses? Attend our free webinar on Tuesday, April 9 at 1pm EDT.
About Author Ty Kiisel:
I write about small business and small business finance as Editor for OnDeck.
With over 30 years in the trenches of small business, I’m a Main Street business evangelist, author, and marketing veteran that makes the maze of small business lending accessible by weaving personal experiences and other anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.
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