Merchant Cash Advance for Plumbers

Running a plumbing and heating business can feel like a constant battle with cash flow. Juggling the many considerations that balloon once the business grows beyond a simple sole trader and into a structured company puts continuous strain on your bank account.      

Understanding the difference between funding for growth - good for getting new vans or taking on personnel - and support finance that actually helps you meet your day-to-day expenses is essential.

At Clifton Private Finance, we have years of experience helping plumbing and heating business owners find the right finance for their needs. One effective tool is a merchant cash advance (MCA). This is a short-term funding solution that can be obtained quickly and has a flexible structure that makes repayments manageable. Learn more with this tailored guide.

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How to Use Merchant Cash Advance in a Plumbing and Heating Business

A merchant cash advance is a short-term finance solution that helps ease current strain and provide capital for unexpected costs. Its factor rate-based structure makes it easy to understand, and its percentage-based repayment can reduce stress during seasonal downturns.

However, it’s important to understand that merchant cash advances are a poor fit for longer term financing. Because it's repaid from gross takings, it can become a drain on business growth if allowed to stretch beyond six-to-nine months. An MCA that hasn’t been cleared within a year or so may affect affordability calculations and stifle expansion in the long term.

This means MCAs should be explored as an option for short-term capital needs. Your Clifton Private Finance adviser will discuss your needs in depth, presenting merchant cash advances only when they’re a good fit, and suggesting alternatives where more appropriate.

Some of the effective uses of merchant cash advance for plumbers include:

Merchant Cash Advance for Labour

Larger contracts, perhaps with councils or housing associations, for example, can lead to a period of tight finances. Subcontractors and even full-time engineers who have worked on the properties need to be paid, while payments are yet to be made, and may yet be many weeks away.

Plumbing and heating businesses with strong card transaction history can utilise merchant cash advances to cover these immediate concerns, ensuring that staff are paid on time without needing to put pressure on, or strain relationships with important clients.

Smaller plumbing and heating businesses may find themselves in similar situations with smaller, personal accounts. Offering payment plans and extended terms to domestic customers will improve your standing and generate new business, but it can strain cash flow and make meeting payroll needs difficult.

MCA is an effective tool here, leveraging the very payments that you know are just around the corner to meet today’s needs.

An Alternative

For larger-scale businesses working B2B with clients who pay through invoice rather than individual card transactions, invoice finance offers a similar level of support, leveraging accounts receivable to secure loans. Separated into the two forms of invoice discounting (a loan secured through future invoice payments) and invoice factoring (selling on the debt to a third party), invoice finance is a powerful option for growing P&H businesses.

Speak to your business adviser at CPF to learn more about invoice finance, or read about it in our knowledge base.

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Merchant Cash Advance for Stock and Materials

Like labour, stock and materials typically need to be bought before the job is paid, and the time between money out and money in can be considerable. Merchant cash advances can help pay for significant stock acquisitions, such as boilers or heat pumps, when the customer’s payment is assured.

It is vital to calculate the cost of the merchant cash advance against the profit margin of the sale. A factor rate of 1.2x, for example, will cut 20% from a boiler’s profit margin - should you have marked it up for less for your customer, using an MCA in this situation would effectively mean you are subsidising your customer’s boiler!

Always balance the merchant cash advance used to purchase stock against your true profit margins to ensure that it is a viable business tool.    

Using a merchant cash advance in the right way can help you secure larger contracts with good profit margins in the labour costs and potential future work.

An Alternative

Negotiating with your suppliers to extend your own payment terms can prove effective. A switch from 30-day terms to 60-day terms with established suppliers can offer similar breathing space. It is often worth considering using suppliers with whom you have a better relationship, even if their list prices are a little higher than others.

Merchant Cash Advance for Repairs

Having an engineer off the road for even a day can have a huge impact on your business, not only in terms of immediate lost income, but also with the knock-on effect of rescheduled or cancelled installations. When the priority is to get back working as fast as possible, a merchant cash advance can offer the much-needed support.

Because merchant cash advances can be arranged quickly, they minimise delays, meaning vehicle repairs and equipment replacements are swift. The costs are spread across the next few months, and the shock to immediate company finances is minimised.

Here, one of the MCA’s key advantages is in its definitive repayment obligation. For short-term emergency use, higher holdback percentages can actually help, ensuring the advance is repaid as quickly as possible and ensuring that the impact doesn’t stretch to long-term finances. Most of the alternative options can result in the business being tied up in a repayment schedule that’s far longer and strangles growth.

An Alternative

The main alternative for an MCA when instant cash is needed typically comes with unsecured lines of credit, such as credit cards or bank account overdrafts. These provide similarly quick access to funds and can be very effective for short-term needs. Unsecured lines of credit should be carefully managed to avoid high interest payments and over-reliance.

Merchant Cash Advance to Improve Supplier Terms

Strategic application of a merchant cash advance can help you build better relationships with your suppliers, giving you the power to develop accounts with new suppliers and negotiate superior terms with existing businesses.

This is possible because MCA gives you access to a lump sum of cash that lets you meet short supplier terms without impacting your business day-to-day.

You can use merchant cash advance to:

• Pay a new supplier immediately - Often, plumbing and heating businesses find it difficult to open a new account with a supplier because those first few orders are paid on zero-day or 7-day terms, causing a gap between purchase and customer payment. MCAscan fill that gap, enabling you to move to a new supplier and build a relationship without draining capital.
• Show timeliness with an existing supplier - Meeting your agreed payment terms, or even paying early can improve your relationship with a current supplier. With the power provided by an MCA, you can increase your standing with your suppliers prior to negotiating larger credit levels or better terms for the long term.

Using merchant cash advances in this way balances the cost of the advance and the benefits obtained from your improved supplier accounts. Opening the door to new supply chains or negotiating superior terms can increase profit margins for the future, improving your business supply chain foundations.

An Alternative

Mid-term financing, such as traditional business loans, can form part of an ongoing expansion strategy that includes supplier negotiations. For larger businesses dealing with significant installations, options such as stock finance or purchase order finance can be used to provide the funds necessary for obtaining the materials needed to secure and complete contracts.

As your business grows, developing your finance portfolio will help you remain stable and flexible. Speak with the CPF business team to explore your options and learn more about the funding products that are suited to your business size.    

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Merchant Cash Advance in Plumbing and Heating - An Illustrative Example

Steve has been running his plumbing and heating business for a few years, moving from being a sole trader plumber with a van, to running a firm with three full-time engineers and four occasional subcontractors.

He’s confident with debt finance and already has fleet asset finance to lease and maintain his vans, as well as an unsecured business loan that paid for his successful marketing drive. Now, he has managed to obtain a lucrative contract with a local housing association, providing plumbing services for their spread of properties across the city.

The first month of working for the housing association has been far busier than Steve expected. He has had to call in all four of his subcontractors, and together, all seven of his field team have been working full days.

At the end of the month, he invoices the housing association and asks when payment is to be expected. As a shock, he discovers that they work on 60-day terms with new suppliers, and with the timing, it could realistically be two-and-a-half months before he sees actual cash in the bank. This greatly upset his plans, as he’d been expecting 7-day or 14-day terms based on his experiences with his own suppliers.

As it’s approaching payday, Steve realises he has just over a week to find almost £40,000 to pay his team.

With his experience, Steve has an understanding of invoice finance, and his first instinct is to look to this avenue - after all, it’s an invoice payment that is causing the bottleneck. However, Steve has no prior record of payment from this client, and the single invoice is not considered guarantee enough to secure traditional invoice finance. Instead, CPF recommends  a merchant cash advance.

Steve’s £40,000 advance becomes a £45,200 balance once the factor rate is applied.

Steve’s MCA Repayments

*The final repayment clears the balance of £10,891, representing only 18.09% of card transaction turnover.

Steve’s aggressive repayment choice means the merchant cash advance is paid off within four months. As the invoice payment from his housing association client was cleared into his bank account midway through August, Steve only suffered a couple of tight months.

Merchant Cash Advance for Plumbers with Clifton Private Finance

At Clifton Private Finance, our business team will work with you to explore the finance options available. Where a merchant cash advance fits your needs, we can help you get the right deal for your circumstances.

As a whole-of-market broker, Clifton Private Finance has established relationships with the many specialist MCA lenders in the UK. Partnering with us means:

• A personal relationship with an experienced adviser - You will work directly with an adviser who understands the nuances of the P&H industry, backed by a team of finance specialists with decades of experience in business funding.
• Access to the full range of MCA products - Our service explores the full market of MCA deals on offer to ensure you get the best fit.
• Pre-approval assessment - We use real lender criteria to evaluate your application before submission, with an assessment of your card transaction history and forecast to make sure of the best approach.
• Exploration of alternative options - If MCA is not the right fit for your P&H business, our advisers will discuss the range of debt finance alternatives, helping you get the funding you need to move forward confidently.

For a free MCA consultation, contact the business team at Clifton Private Finance today.

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