The telecom industry is flying high. New technologies are advancing progress at a torrid pace in a world of constant demand. New infrastructure, faster speeds and better reception are demanded. That’s great for the telecom companies at the top of the value chain where profits are soaring, but it is a challenge for lower tier telecom businesses struggling to stay in the game. With the surge in telecommunications growth, there is definitely money to be made. However, it usually takes money to make money and therein lies the challenge for smaller telecom service companies. The solution? Telecom invoice management.
Financial Challenges for Telecom Service Businesses
With each technological advancement – whether it’s the upgrade to 4G LTE, the introduction of VoIP or the creation of a digitized telecom ecosystem – telecom services and maintenance companies need to continuously ramp up to meet the demands of industry. To win contracts in a highly competitive industry, telecom service companies must be able demonstrate their capacity to provide and support leading-edge equipment and software and maintain on time delivery of services. When the contract is won, equipment has to purchased, technicians have to be hired and space has to be expanded all while paying for current payroll, marketing and operating expenses.
Outflows Move Faster than Inflows and the need for Telecom Invoice Management
While the outflow of money is continuous for telecom service providers, the inflows can be as slow as molasses. Industry-standard pay terms range from net-30 to net-60 days. Larger companies often use their clout to establish even longer terms. It is not uncommon for a telecom service company to be profitable on paper while operating under a constant working capital crunch, making it extremely difficult to grow the company. The worst case is the company can’t even afford to keep its current customers. Telecom companies must have a continuous and reliable source of working capital financing if they are to survive, let alone succeed.
Why Traditional Financing is Not the Answer, and Telecom Invoice Management Is
Although telecom companies may be in a growth mode, many don’t have sufficient operational history or profits to obtain traditional financing through a commercial lender. Because of the lengthy receivable collection times involved, banks are reluctant to extend financing to smaller or less established companies. Even for companies that might qualify for bank financing, many are reluctant to pursue it due to the lengthy application and approval process. Growing telecom companies have to be nimble, able to respond to the market in the moment. For their needs, bank financing is usually too limiting and inflexible. That’s why many telecom companies turn to invoice factoring as an alternative financing strategy.
Telecom Invoice Management: The Ideal Solution for Telecom Companies
Invoice factoring is a quick and easy way for telecom companies to obtain the cash infusion needed to ramp up for new projects, hire new employees, and purchase supplies. It doesn’t involve borrowing money, so there is no lengthy application or approval process. In fact, it doesn’t even require a company to qualify based on its own credit worthiness. Rather, invoice financing relies on the credit worthiness and reliability of the invoiced company. That means the telecom company doesn’t have to incur any debt or increase its monthly obligations. Instead, the company is simply monetizing its receivables to create immediate cash flow, getting paid now rather than waiting one to five months.
The factoring process is straightforward. A factoring company purchases the accounts receivable of the telecom company, advancing the collectible cash – up to 95% — which is direct deposited in the company’s bank account within two to three business days. The rest is held in reserve as a cushion to cover possible billing discrepancies. When the invoice is paid, the factoring company remits the remaining funds less a factor fee of 1 to 3%. The fee percentage paid is based on the age and the amount of the invoices. As invoices are submitted to the factoring company by the telecom company, the process repeats itself.
The Benefits of Telecom Invoice Management
Through A/R factoring, telecom companies are not only assured of having the working capital available to keep their operations running while taking on new business, they relieve themselves of the time and costs associated with chasing collections. They can use their invoice financing account as little or often as needed. Many companies simply incorporate into their ongoing financial management and working capital plan. This ensures smooth and predictable cash flow during any business cycle.
Receivables factoring is ideally suited for companies in the telecommunications industry, which is notorious for extremely lengthy collection times. The industry is constantly shifting, always advancing and the competition for new contracts is fierce. In order for smaller telecom companies to compete, they must be able to grow and respond to changing landscape. They can’t afford to worry about making payroll while their competition is winning contracts. Having a factoring mechanism in place is the optimum financial management solution.