One of the advantages of being a plumber is the independence that comes with the job. While you may have maintenance visits set to a regular schedule, more often it’s a job of emergency calls and unexpected situations. This type of job keeps away the monotony of a more structured career but also can leave plumbers in a pinch when an emergency call means an unexpected purchase of an expensive part. Traditional bank financing cannot help in these quick-turnaround situations, but factoring most certainly can.

Factoring is a financing method in which a business sells its accounts receivable at a discount to a factoring company, which allows an immediate infusion of cash into the business, not 30 days or more later. The majority of the invoice value (typically 75% to 90%) is advanced within 24 hours, with the remainder released at the time the invoice is collected. Since the reserve amount (10% to 25%) is returned once the invoice is paid, it should not be confused with the discount fee, which is a small percentage of the total invoice amount. 

When plumbing contractors finance using factoring, a third-party company such as Capital can provide them, on average, around 80% of their invoice value for these high-cost jobs typically in one day. Contractors can then cover their payroll, pay for gas for their trucks, get supplies and pay for dumping fees. Once the factoring company purchases the invoice, it handles the invoicing and payment calls to the contractors’ customers.

This is the second, somewhat hidden, advantage of factoring. Many times we have caught mistakes on invoices — spelling mistakes or terms that don’t match the terms on the purchase order. All those things are obstacles customers can use to delay payment. With factoring, what you get is essentially a double audit; we catch honest math or spelling errors that would otherwise cause two to three weeks of delay on invoice collection.

In our experience, plumbing contractors most in need of factoring financing are those who primarily serve commercial clientele. Their clients typically are a mix of fast-casual or quick-service restaurants, big-box retail stores and smaller municipalities that do not have their own plumbers on staff. The services are a mix of long-term maintenance tasks such as pumping septic tanks or grease traps and no-notice emergency jobs such as unclogging drains.

These plumbers often have what we call a “lumpy revenue stream,” characterized by a lot of emergency calls that require expensive equipment they have to pay for quickly. Exacerbating this lumpy revenue is the fact that many of these clients — often chains that consolidate requests and invoices — may be on a 30-day pay term but don’t pay for 45 to 60 days.

These issues are common and unavoidable, but when you’re waiting for large payments yet still paying for equipment and supplies for emergency jobs, it can stretch any business’s budget thin.

The independence that plumbing, as an industry, affords its business owners and tradesmen can be a great advantage right up until the payment part of the operation. By being a more flexible, faster and highly responsive source of financing, a factoring company can help contractors’ businesses run smoother. Plumbing contractors can devote their time and attention to the jobsite instead of collection calls.


About the authors: Layne Ainsworth is the managing director of Liquid Capital Associates located in Cambridge, Mass. He has more than 20 years of experience in helping early-stage companies raise their initial rounds of equity financing. Kimberly Ainsworth also is a managing director of Liquid Capital Associates. She has more than 10 years of experience in financial services marketing, project management and small-business financing operations.