For construction and landscaping companies, business typically heats up during the summer. While this is undoubtedly positive for those businesses, the busiest time of the year can present unique cash flow challenges for them.

If you operate a construction company, for example, you might have funds tied up in supplies and building materials. That can make it harder to pay for other vital expenses—like payroll, utilities, gasoline, insurance, and more. You might also have to pay contractors and subcontractors before your customers settle their bills. Then, there’s always the risk that a job runs over budget, leaving you with a skinnier profit margin than you planned.

Landscaping companies run into similar problems. With more lawns to mow and more gardens to maintain, you might decide to buy or lease more equipment—tying up cash along the way. Customers might not always pay their invoices on time either, creating additional financial challenges.

Trade credit: The $3.1 trillion question

One primary reason that construction and landscaping companies—along with businesses in virtually all other industries—run into cash flow problems is that they deal in trade credit. Trade credit—also called “net terms”—refers to the conventional method of financing transactions between sellers and buyers.

Here’s how trade credit works: A seller might pay upfront for inventory, services, or supplies to a buyer, giving them 30, 60, 90, or even 120 days to pay their bills. A landscaping subcontractor, for example, might invoice their clients at the end of the month and then give them 30 days to pay from there. On the flip side, a construction company might use trade credit to get building materials, tools, roofing supplies, and more from a supplier and have 60 days before payment is due.

Generally speaking, sellers—who would no doubt like to be paid immediately on every sale—grudgingly accept trade credit because it’s the standard. Without offering it, it’s nearly impossible to compete. At the same time, buyers typically like the arrangement because they’re able to purchase more than they otherwise could, which helps them grow their businesses.

However, according to new research from PYMNTS and Fundbox, trade credit has severe, often damaging financial implications for U.S. businesses.

On any given day, the PYMNTS survey found, U.S. companies are collectively owed $3.1 trillion in unpaid invoices, making it that much harder for them to run their businesses. Making matters worse, when merchants extend trade credit, they still can’t plan to get paid on time. Some customers will typically pay even later than the agreed-to terms. Many of them expect to able to pay late—because they consider themselves to be such good customers. For years, this has been the norm, especially in B2B transactions and certain trades, like construction or landscaping.

What’s wrong with traditional trade credit arrangements

Trade credit essentially makes the companies that extend it assume the role of a bank for their clients—but without the upside (like the interest that accrues immediately). Even if every single client pays on time, there are still massive administrative implications to consider. For example, reviewing applications for trade credit, approving those applications, setting up new customers with accounts or terms, making sure invoices are sent on time, keeping track of who owes what, and staying on top of when payments are due are all time-consuming back-office tasks.

Suffice it to say that, in the age of automation, the current set up leaves a lot to be desired.

What’s more, while receivables might look beautiful on the balance sheet, you can’t exactly use those funds to grow a business. Managing day-to-day operations while waiting for funds to arrive can be needlessly stressful and challenging.

As for pursuing new opportunities or investing in new initiatives? That’s often out of the question, too, without a comfortable sum in the bank.

The good news is that no matter which side of the transaction you’re on, your construction or landscaping business can take advantage of innovative new solutions offered by fintech companies. Technology is rapidly expanding opportunities for businesses to get access to the funds they need to grow their companies without the downsides that come with traditional trade credit arrangements.

A better way forward

If your construction or landscaping business offers clients trade credit, you can step away from the role of the banker by using fintech solutions like Fundbox Pay.

Fundbox Pay allows you to offer trade credit to approved customers, giving them generous net terms to pay their bills. The difference, however, is a big one: When a customer pays you with Fundbox, you get paid right away, while Fundbox handles the net terms with your customer. This enables you to keep your clients’ payment experience the same while accelerating your cash flow by getting the funds you need to grow your business sooner.

On the other side of the transaction, if you’re a buyer who would appreciate more time to pay your invoices to suppliers, you can use Fundbox to get net terms everywhere Fundbox is accepted as payment (up to your credit limit). That means you can apply once, and if approved, use your Fundbox credit to pay multiple vendors, getting net terms each time.

If your construction or landscaping business is sick of dealing with traditional trade credit financing arrangements, you’re not alone.

Moving to a new financing solution is one powerful way to free yourself from legacy financial processes that can slow down your business. Taking advantage of technology to speed up payments and credit may be your ticket to delighting your customers and your employees—and helping ensure your company’s finances are in good shape.


Author: Justin Reynolds

Published: August 13, 2019

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