Cleaning business funding: weekly payroll, monthly invoices

A cleaning company is a payroll business. Labor is most of the cost, it's paid weekly or every two weeks, and commercial clients pay monthly invoices on their own terms. Win a big contract and you fund weeks of extra wages before the first payment lands. The money that fits is flexible and cheap enough to carry through that gap.

The cash-flow shape of a cleaning company

• Labor-heavy costs, paid often. Wages, payroll taxes and workers' compensation insurance are the bulk of spending, and they don't wait.
• Invoice income, paid later. Office, medical, retail and property-management clients typically pay monthly on invoice, and some pay slowly. Residential clients more often pay per visit or on a recurring card charge.
• Growth costs cash. A new contract means hiring and training before billing. A company winning work quickly can run out of cash while doing everything right.
• Modest, steady equipment needs. Floor machines, extractors, vehicles and supplies. Specialist services (post-construction, restoration, window work at height) need more kit.
• Client concentration. A single large building or facilities manager can be a big share of revenue.

Which funding fits, and which doesn't

A line of credit lets you borrow for exactly the weeks between payroll and payment, and pay nothing when it's idle. Invoice factoring (selling unpaid invoices for an immediate payment, minus a fee) is another common route for commercial cleaners with slow-paying but reliable clients.

A merchant cash advance is repaid from card sales or fixed daily debits. With mostly invoice income, fixed debits come out of a bank balance that only refills once a month.

What it costs: a worked example

Say you need $50,000 to cover payroll on a new contract.

As working capital at a 1.20 factor rate (the fixed multiple you repay) over 12 months, paid daily:

• You repay $60,000.
• That's 252 business-day payments of about $238.10.
• The cost is $10,000, which is about 37.5% APR.

The same 1.20 factor over 6 months, paid daily, is about 75% APR: the same $10,000 cost, repaid twice as fast.

As a term loan at 18% APR over 24 months, $50,000 costs about $2,496 a month and roughly $9,909 in interest in total (half of our standard $100,000 example). A line of credit repaid as invoices land would usually cost less than either, because you'd carry the balance for weeks, not months. The borrowing calculator on this page shows what your deposits can support.

Sterling's take: work out the contract's margin per month before you borrow to start it. If the cost of money eats most of it, renegotiate the payment terms first.

What funders typically ask a cleaning company for

• Business bank statements for recent months.
• Client contracts, especially for the work you're funding.
• An accounts receivable aging report.
• Payroll reports and proof of workers' compensation and liability insurance.
• ID and ownership details.
• A schedule of existing loans and advances.

Our funding partner's programs suit cleaning companies trading 12 months or more with about $80K a month in deposits, an owner credit score of 600+ and no more than two advances or loans running. Staffing agencies aren't covered right now, so describe your business as what it is.

Red flags specific to cleaning

1. Funding a contract with a slow payer. If a client already pays late, borrowed money just finances their habit. Fix terms in the contract before you scale the work.
2. Daily debits against monthly income. Fixed daily payments on a business that's paid monthly will hit the account hardest in the days before invoices clear.
3. Unexpected withdrawals. The FTC has acted against cash advance providers that debited more than they disclosed and used confessions of judgment against owners. Reconcile every month.

Before you sign

Count the weeks between starting a new contract and its first payment. Multiply by the weekly payroll. That's the size of line you need.