A cleaning company in Hopkinsville, KY that adds a crew for a new contract pays wages every two weeks, while the client may pay its first invoice weeks after the work starts. Working capital covers that stretch. The owner sends one request to Rowanharbor Finance, and independent funding partners decide whether to fund it and on what terms.
One invented case runs through the post: a janitorial company adds a four-person crew, waits 75 days for the first payment and buys supplies on account. It shows why the loan has to be larger than the payroll, what a supplier discount is worth, and how a credit line handles the same wait. Every dollar figure is made up and computed from the inputs shown.
Payroll for a new cleaning contract before the first invoice is paid
Suppose a janitorial company signs a contract to clean a medical office building at night. It adds four cleaners, and the added crew costs an invented $5,180 every two weeks. The client is billed at the end of each month and pays 45 days later, so in this invented case the first payment lands on day 75 after the crew starts.
In this invented calendar the crew is paid on days 8, 22, 36, 50 and 64: 5 paydays, $25,900 in wages, before any money comes in from the contract. Add a first supply order of $2,340 and the invented gap is $28,240.
A working capital loan is the plain answer to how to get cash for that gap, with one catch. A loan funded on day one has its own payments due on day 30 and day 60, both inside the wait. In this invented example a 12-month loan of $34,700 at a 15.35% annual rate carries a payment of $3,137.70, so wages, supplies and two loan payments come to $34,515.40, which the $34,700 covers. A request sized only to the $25,900 of wages would run short on day 60 in this invented calendar.
Supplier bills and the early-payment discount
A cleaning supply distributor may bill on account. In this invented case the supplier offers 2% off for payment by day 10, or the full $2,340 on day 30. Taking the discount saves $46.80 in this invented example.
Paying 20 days early means borrowing the discounted $2,293.20 on the invented bill for those 20 days. At the invented 15.35% loan rate that comes to $19.29 of interest, so the discount is worth more than the interest in this invented case. On a contract that orders supplies every month, the same test can be run on each statement.
Equipment for the crew, such as a ride-on floor scrubber or a carpet extractor, lasts for years and fits equipment financing rather than money meant for wages.
One working capital loan or a revolving line for the same contract gap
A business line of credit draws only what each payday needs. In this invented case the company draws $5,180 on each payday and $2,293.20 on day 10 for the discounted supplies, then repays all of it on day 75. At a 12.85% annual rate the interest comes to $408.08 in this example, against $2,952.40 of interest over the twelve months of the invented loan.
The two do different jobs. The loan pays down every month whether or not the contract has caught up. The line follows the cycle: while the contract runs, each month’s invoice is paid about 45 days after month end, so the company is always carrying about one and a half to two and a half months of work it has not been paid for. A line can be drawn again for each cycle; a loan, once repaid, has to be requested again. A funding partner may offer one, the other, or neither.
A merchant cash advance is collected from card sales, so a company paid by invoice and check has little for it to collect from.
Records that show the contract’s cash cycle
For this kind of request, the paper trail matters more than a projection. A funding partner may ask for the signed contract with its billing and payment clause, the payroll register for the current crews, and bank statements that show earlier clients paying on time. An aging report of open invoices shows how long the company already waits on the clients it has.
Janitorial services (NAICS 561720) had 9 employer establishments in Christian County, KY in 2023, according to County Business Patterns, with $1.8 million of annual payroll. For a company like the one in this example, the payroll timing above is the cash question.
By Rowanharbor Finance · Updated
