Underwritten in July, repaying in October: seasonality and HVAC advance debt

August was the best month you have ever had. Every truck was booked, you added two installers, and the deposits looked like a company twice your size. So when the funder called with an approval based on those statements, the number seemed reasonable.

It is late October now. The phone rang eleven times last week instead of forty. The debit is exactly what it was in August.

That is not bad luck. It is how the underwriting works, and every seasonal trade contractor who has carried advance debt has lived the same six month arc.

You were underwritten on your best ninety days

Advance underwriting is mostly a bank statement exercise. A funder pulls three or four months of statements, looks at average monthly deposits, average daily balance, and the number of negative days, and sets a purchase amount and a daily amount from that.

For a plumber, an electrician, a roofer, or an HVAC contractor, the season decides what those statements say. Cooling demand concentrates in June through August. Heating demand concentrates in November through February. April, May, September, and October are the shoulder months where a residential service company can run at 40 to 60 percent of peak revenue with the same fixed overhead.

If you were funded in August, you were measured at the top of the curve and you will repay across the bottom of it. Nothing in the agreement adjusts for that on its own.

The shoulder season math

Take a hypothetical residential HVAC company. Peak months run $310,000 in deposits. Shoulder months run $140,000. Annual revenue is healthy and the company is genuinely profitable across twelve months.

The advance is $200,000 at a 1.45 factor, so $290,000 of payback. The funder sets the daily at $1,850 across roughly 157 business days. In a 21 day month that is $38,850.

In August, $38,850 out of $310,000 is 12.5 percent of revenue. Tight, but the company clears it. In October, $38,850 out of $140,000 is 27.8 percent, and that is before payroll for a crew you cannot lay off if you want them in November. Gross margin on residential service runs in the 45 to 55 percent range for a well run shop, which means the debit alone is eating roughly half of the gross profit the shoulder month produces.

The company is not failing. The month is just structurally short, and the contract has no mechanism that notices.

Stacking is how seasonality becomes permanent

Here is the pattern that repeats. The shoulder gap opens in October. A second advance covers it. Come June, cash improves and the balances feel manageable again, so a third advance funds the summer inventory and a new truck.

Each new funder underwrites on the trailing statements, and those statements now include advance deposits. Revenue looks like it is climbing. It is not. The deposit line is climbing.

By the following October there are three debits totaling $3,100 a day against a $140,000 month. At that point the question is no longer whether to take another advance. It is which obligations get paid at all, and the answer has to start with payroll and the fuel cards, because a truck that does not roll produces nothing.

Equipment credit is the constraint that ends the season

A trade contractor's most valuable relationship is not the bank. It is the distributor counter that gives you 30 day terms on condensers, furnaces, coils, and copper.

That line behaves like every other trade credit line: it is granted on payment history and pulled on payment history. Two short statements and the credit manager reviews the account. Three and you are on cash on delivery, or worse, on hold.

The timing is what makes it fatal for a seasonal business. The account goes short during the shoulder months, so the credit review lands in the spring. Then June arrives, the phone starts ringing with no cooling calls, and you cannot get equipment released without paying up front for it. On an allocated product line during a hot summer, availability is already tight and the distributor sends the units to the contractor whose account is current.

So the peak season, the only part of the year that generates the surplus you need to clear the advance, is the season you lose. A contractor who missed six weeks of installs in July because of a credit hold does not get those installs back in September.

If your parts and equipment account is drifting, deal with it before the season, not during it. Distributors are usually willing to work out a payment arrangement with a contractor who calls in March. They are much less willing in June, when they have somewhere else to send the units.

Reconciliation exists, but read exactly what it says

Most agreements describe themselves as a purchase of a percentage of future receipts, with the daily amount serving as a good faith estimate. Many include a reconciliation clause that lets you request an adjustment when actual receipts fall.

The clause is often narrower than it sounds. Common conditions include a written request rather than a phone call, delivery of bank and processor statements for the period, a limited window each month, sometimes an administrative fee, and language making the adjustment discretionary rather than automatic.

State disclosure laws have started addressing exactly this gap. New York Financial Services Law Article 8 and California Financial Code Division 9.5 require providers of sales based financing to disclose an estimated term and estimated annual percentage rate before funding, because a term that assumes level revenue is misleading to a business whose revenue is anything but level. Those laws help buyers going forward. They do not rewrite an agreement you already signed.

If your contract has a reconciliation clause, request it in writing and keep the copy. If a funder refuses a properly made request, that refusal is worth documenting.

Maintenance agreements are an obligation, not a reserve

Seasonal contractors sell annual maintenance plans, and the cash arrives up front. It is tempting to treat that balance as available money in October.

It is not. A plan sold in September for two visits is unearned revenue and a labor obligation. Spending it on a debit means you will perform those visits in the spring with no incoming cash attached, which pushes the shortfall into the next shoulder season instead of solving it.

Track plan liability separately from operating cash. It is one of the few numbers that tells you honestly whether the company is short or just early.

Three moves before the slow season starts

First, build a twelve month cash calendar from last year's actual deposits rather than a full year average. You are looking for the two or three months where fixed costs plus the debit exceed realistic collections. Those months are your decision points, and they are visible months in advance.

Second, add every debit across every agreement into one daily total and one monthly total. Contractors are frequently surprised by this number because the agreements were signed months apart and nobody ever summed them.

Third, deal with it in the shoulder month you can still see coming, not the one you are already inside. Restructuring conversations go better when a business is current and has a plausible forecast than when it is three debits behind and a funder has already sent a default notice. If the calendar shows a gap in October, the useful time to work on it is August.