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An article published in 1999 in the Journal of Accountancy offers insight into the cash flow cycle present in most smaller businesses, especially those that operate on relatively limited profit margins. In the article, author Germain Boer outlines the basic principles of cash flow management and identifies common ways to improve profitability and increase the stability of funding in the business environment. Modern security firms typically experience many of the cash flow issues described in the article and require added financial reserves to manage their ongoing operational expenses.
The Cash Gap
Security firms typically work on a contract basis and provide services for a monthly, quarterly or annual fee. Depending on the particular sector of the security industry, navigating the period between the time that services are rendered and the time when payments are received by the security firm can create serious cash flow problems for smaller firms that depend upon regular payments to meet their financial obligations. For companies that cannot obtain credit arrangements from traditional banks and lenders due to current tight money conditions in the U.S. economy, finding alternatives to these loans and lines of credit can provide valuable resources to manage the cash gap and allow a greater degree of financial flexibility for many small security companies.
The Role of Accounts Receivable Funding
In most cases, security firms have accumulated promises to pay in the form of outstanding invoices and accounts receivable. The difficulty is in managing the wait time before these amounts due are paid to the company. Accounts receivable (A/R) loans can allow small security firms to access funding immediately by collateralizing these financial instruments. Approvals are based on the value of the A/R transactions and the stability and reliability of the companies who owe money on these invoice arrangements. If approved, A/R loans can provide borrowers with a substantial percentage of the value of outstanding invoices. The lender collects the principal amount due along with any outstanding fees when the invoices are paid. The remaining balance is forwarded to the borrower to provide added financial resources for ongoing profitability.
Companies like 1st Commercial Credit are experts in the cash flow management field. These alternative lenders can provide A/R loans, purchase order funding and many other asset-based lending solutions to provide added help for security companies struggling with the cash gap between services rendered and payment for those services. By working with the credit specialists at 1st Commercial Credit, smaller security firms can manage their ongoing obligations and create a financial portfolio that can help them weather the common cash flow gap more effectively.