HVAC, plumbing, roofing working capital needs?

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May 05, 2025

by a searcher from New York University - Leonard N. Stern School of Business in New York, NY, USA

I have been looking for reasonably priced HVAC companies in the NY/ NJ area, but came across a business that does A/R financing for small/medium-sized businesses. They pay ~98% of the A/R today and receive 100% of the A/R when it's paid by the customer. A growth area they identified is providing A/R financing for essential service companies e.g. HVAC, plumbing, roofing, etc. and I know the cashflow conversion cycle can be painful in the industry. The cost for the service is a little higher than a bank line of credit, but the service is faster, easier, and only used as needed. My question is: Do any current owners/ operators of HVAC or similar service businesses use A/R financing to solve their cash flow or working capital needs? Happy to have a chat with anyone with a view or experience here. Thanks in advance!
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Reply by a professional
from Columbia University in Oakland, CA, USA
Receivables financing, which can take the form of either bank revolving credit lines or factoring (i.e., sales of receivables), can be an effective way to manage the cash conversion cycle of a B2B business, as you note. When using a factoring facility, take care to read the terms carefully. Not an exhaustive list, but it is often important to understand: - how and when the factoring fees are applied - how chargebacks of disputed or unpaid receivables are treated - how and when the reserve is funded and released - whether the factor's commitment to purchase receivables is ongoing or can be offered/declined on an invoice-by-invoice basis - any customer concentration limits - whether the advance rate applies in all instances or only for certain account debtors (98% is very attractive in my experience, which isn't to say these aren't the terms they're offering, but it would cause me to look very closely at the other terms) - whether you're required to obtain trade credit insurance on your customers - whether you're required to guarantee the deal and if so, what the terms of that guarantee are - last but not least, whether the factoring facility is being offered on a recourse (i.e., if you're on the hook if the customer fails to pay, pays late, or becomes insolvent) or nonrecourse basis and, if nonrecourse, what chargeback rights remain in effect for the factor's benefit
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Reply by a searcher
from University of Illinois at Urbana in Chicago, IL, USA
Not the industry you're looking for, but this is technique (also known as A/R factoring) is a common (if infrequent) mechanism used by American medical services business (like doctors offices) to manage cash flow. I see it every now and then in my day job. Key difference is that collectability on most medical procedures is pretty high, while home services might be harder to collect on. Business model quickly gets upside down if the party liable for the A/R you just acquired goes under/doesn't pay/can't pay, etc. If you're considering acquiring this business, I think diligence on collectability of A/R (especially from historical or repeat sellers) is a must. Hope that helps!
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