A facilities services company, whether it self-performs cleaning, maintenance and engineering or manages subcontractors across many sites, usually borrows on a receivables-based line. Lenders typically advance 80% to 90% of eligible invoices and commonly cap any single customer at 20% to 25% of eligible receivables, which bites hard in a business built on a few large contracts. The line is sized around monthly contract billing, extra work orders that need customer approval, and the cash needed to mobilize new sites. Lenders focus on contract terms, rebid dates and whether subcontractors are paid before or after the customer pays.
- Main collateral
- Monthly contract billings and approved work orders
- Advance rate
- Typically 80% to 90% of eligible receivables
- Biggest constraint
- Customer concentration, commonly capped at 20% to 25% of eligible receivables per customer
- What lenders read closely
- Contract term, termination rights and rebid dates
- Common reserve
- Unpaid subcontractors and accrued payroll on pass-through work
- Hidden drag
- Invoices rejected by customer payment portals for missing purchase order numbers
How cash moves through a facilities contract
A facilities services company sells labor, supervision and coordination across buildings it does not own: offices, hospitals, campuses, distribution centers, retail portfolios. It pays technicians, custodians and supervisors every week or two. It bills the customer monthly, usually in arrears for work done, sometimes in advance for a fixed monthly fee. Large corporate and institutional customers then pay on terms their procurement departments set, which are often long and rarely negotiable for a mid-sized vendor.
The revenue comes in two streams, and lenders treat them differently:
- Base contract billings: a fixed monthly amount for scheduled services at each site. Predictable, easy to verify, the core of the borrowing base.
- Extra work and project billings: emergency repairs, one-off projects, event support, snow and storm response, small capital work. Higher margin, but each invoice depends on a work order or purchase order the customer approved, and disputes are more common.
Some companies self-perform almost everything. Others act as integrators, holding the customer contract and subcontracting most trades to local vendors. The integrator model changes the lender's view of the receivable considerably, as the sections below explain.
The cost of winning a contract
The moment a facilities company is most likely to run short of cash is right after it wins. A new multi-site contract means hiring and training staff, buying equipment and supplies, sometimes vehicles, and running the sites for a full billing cycle before the first invoice goes out. Then the customer's payment terms start.
| Month of the new contract | Cash out (payroll, supplies, equipment) | Invoiced | Collected | Cumulative cash gap |
|---|---|---|---|---|
| Month 1 (mobilization and first month of service) | 140 | 0 | 0 | 140 |
| Month 2 | 100 | 110 | 0 | 240 |
| Month 3 | 100 | 110 | 0 | 340 |
| Month 4 | 100 | 110 | 110 | 330 |
| Month 5 | 100 | 110 | 110 | 320 |
The gap peaks around three months in, at more than three months' worth of contract cost. A receivables line funds part of that once invoices exist: by month three, 220 of invoices are outstanding, and a lender advancing 85 on every 100 of eligible invoices lends about 187 against them. The rest, including the whole first month and the mobilization spending, comes from the company's own cash. That is why lenders ask to see a growth plan against availability, not only a borrowing base.
Model the cash needed to mobilize each new contract before bidding it. A line covers invoices; it does not cover the month before the first one.
What counts in a facilities services borrowing base
The general rules are in eligible vs ineligible receivables. These are the facilities-specific items lenders look for in the aging.
| Receivable | Typical treatment | Why |
|---|---|---|
| Monthly base-contract billings, within terms | Eligible | Scheduled work, performed and billed under a signed contract |
| Fixed monthly fees billed in advance | The unearned part is usually ineligible | Service not yet performed is not a receivable the customer owes |
| Work-order and project invoices with an approved purchase order | Eligible | The customer authorized the work |
| Extra work without a purchase order or signed approval | Often ineligible until approved | The most common source of dispute and short-pay |
| Invoices stuck in a customer's payment portal | Aged normally; often end up past 90 days | A rejected invoice is not in the customer's payment queue at all |
| Invoices more than 90 days past invoice date | Ineligible | Typical cut-off for any borrowing base |
| Public-sector customers | Eligible with extra steps, or excluded | Collecting from a government payer on a lender's behalf has its own rules |
| Early-payment discount programs | Discount treated as dilution | The customer pays less than face value in exchange for paying sooner |
Customer payment portals deserve special attention. Large customers route vendor invoices through procurement systems that reject anything without a matching purchase order number, site code or approved rate. A rejected invoice can sit unnoticed for weeks while the company's aging shows it as simply unpaid. By the time someone chases it, it may be past 90 days and out of the base. Lenders notice this in the field exam as a pattern of old invoices from customers that otherwise pay on time, and they may lower advance rates or tighten the eligible period for those customers. Read what lenders look for in an AR aging with this in mind.
Early-payment and supply-chain finance programs, where the customer or its bank pays early in exchange for a discount, reduce the amount collected against each invoice. Lenders treat the discount as dilution. They can still be worth using, but the borrowing base has to reflect them.
Subcontractors and pass-through work
An integrator that subcontracts much of its work bills the customer for the full service and pays the subcontractor out of what it collects. To a lender, that receivable carries a hidden claim. If the facilities company fails, unpaid subcontractors may have claims against the customer, the building or the receivable itself, and the customer may hold back payment until the trades are paid. On private construction-type work, a subcontractor may have lien rights against the property, which puts pressure on the customer to withhold.
Lenders respond in three ways. They ask for an aging of payables to subcontractors alongside the receivables aging. They may hold an availability reserve for subcontractor payables that are past due. And they look closely at whether the company pays subcontractors on fixed terms or only when paid, which shifts risk in either direction. Transparent's line-of-credit checklist asks for an AP aging for exactly this reason.
Self-performing companies have a different pass-through issue: accrued payroll. Two weeks of wages earned but not yet paid is a priority claim in many situations, and some lenders reserve for it, especially where payroll taxes have ever been late. An owner with any payroll tax arrears should read refinancing with unpaid payroll taxes first.
Concentration and the rebid calendar
Facilities companies grow by landing large contracts, and a mid-sized firm may have two or three customers that make up most of its revenue. The concentration cap, commonly 20% to 25% of eligible receivables per customer, can remove a large share of the best receivables from the base. Some lenders will set a higher cap for an investment-grade customer, and that is worth negotiating at the start. More in customer concentration and debt.
Lenders also read the contracts themselves, because facilities services contracts are often terminable on short notice without cause and rebid every few years. A line lender wants to know:
- When each major contract expires or comes up for rebid, and the company's history of renewals.
- Whether the customer can terminate for convenience, and on how much notice.
- Whether the contract prohibits assigning receivables, which some customer paper does.
- Whether pricing escalates with wages, since labor is most of the cost and wage mandates keep moving.
Losing a large contract shrinks the borrowing base within a billing cycle or two, and it can also break a fixed charge coverage covenant. A company with a major rebid in the next year should say so in its lender materials and show what the business looks like without that customer. That is better than a lender finding the date in the contract.
Covenants and reporting
- A monthly or weekly borrowing base certificate, with receivables and subcontractor payables aged by customer and vendor.
- Monthly financial statements with a compliance certificate.
- A fixed charge coverage covenant, tested monthly or quarterly at banks and often only when availability runs low at non-bank lenders; see springing covenants.
- Notice of any material contract loss or termination notice, usually within days of receipt.
- Collections into a controlled account; see cash dominion and lockboxes.
- Letters of credit for insurance programs and some customer contracts, issued under the line as a sublimit (performance bonds come from a surety, not the line); see sublimits.
Banks may instead offer a cash-flow line, sized on earnings and backed by a personal guarantee, with a lighter borrowing base or none. It is simpler to run but usually smaller, and it often carries an annual clean-up that a growing contractor may struggle to meet. The trade-off is in asset-based vs cash-flow lines.
What trips facilities services companies up
- Winning faster than the line can follow. Two new contracts in the same quarter can exhaust availability before either one bills.
- Extra work without paper. Technicians complete emergency work on a phone call; the invoice has no purchase order and sits in dispute.
- Portal rejections nobody tracks. Invoices age out of the base while the customer is not late at all.
- Advance billing counted as receivables. A lender will strip the unearned part in the field exam.
- Subcontractors paid late to fund payroll. It shows up in the payables aging and invites a reserve.
- Merchant cash advances taken to bridge mobilization, which file liens on the same receivables; see refinancing out of cash advances.
Preparing the file
Transparent's line-of-credit checklist: AR aging by customer with days outstanding; AP aging; balance sheet; P&L; year-to-date P&L through last month-end; and a debt schedule showing existing liens, with bank statements and business tax returns where available. Facilities companies should add the top customer contracts with their terms and rebid dates, a subcontractor payables aging if the company subcontracts, and a short schedule of revenue by customer and by service line.
Transparent's lender book holds 235 lenders that write asset-based loans and lines, from banks to non-bank lenders comfortable with concentrated customer lists. Once the documents are in, Transparent builds the lender package in a day. Buyers of a cleaning-led business can start with financing a janitorial company acquisition, and owners of a pure cleaning business with lines of credit for commercial cleaning companies.
Common questions
- Can I borrow against a new contract before I start billing it?
- Rarely on a receivables line, because there is no invoice yet. Some lenders will look at contract financing for large, creditworthy customers, but most mobilization cost comes from the company's own cash or a term loan sized on earnings.
- Why is my biggest customer only partly counted in my borrowing base?
- Concentration. Borrowing bases commonly cap any one customer at 20% to 25% of eligible receivables, and the excess drops out. A strong customer can sometimes win a higher cap if it is negotiated before closing.
- Do lenders care whether I self-perform or subcontract?
- Yes. Subcontracted work carries the risk that unpaid trades hold up the customer's payment, so lenders watch subcontractor payables and may reserve for past-due amounts. Self-performed work raises accrued payroll and payroll tax questions instead.
- What if a major contract comes up for rebid next year?
- Tell the lender and show the business without it. Lenders read contract terms anyway, and a company that has planned for the loss is a better credit than one that looks surprised by it.
- Is a bank cash-flow line better than an asset-based line?
- It is simpler and often cheaper, but usually smaller and less flexible as the company grows. Companies adding contracts quickly tend to outgrow a cash-flow line and move to a borrowing base.