The last thing you want as a contractor is to lose employees because you’re unable to pay them in a timely manner. This can occur due to seasonal changes or when your construction company is in a growth and expansion phase.
The best way to keep from losing employees is to take measures to make sure they don’t leave in the first place. Making sure they’re paid on time is of paramount importance. Listed below are three steps you can take to infuse some cash into your business so you can pay your employees on time and ensure no one leaves because you’re not able to pay them.
If struggling to meet payroll is a recurring problem, you may want to look at ways to cut expenses where you can. Consider salary cuts or perhaps eliminating a few positions. If your crew becomes smaller, there may be equipment you no longer need and could possibly sell. Re-evaluate your office space to see if you could reduce the amount of space you need, potentially lowering that expense.
Take a long, hard look at your business to see other areas that may be costing you more than necessary. You may find a logical solution for cutting expenses in restructuring your staff or changing your vendors.
Equipment Sale and Leaseback
Another possible fix to free up some working capital can be found in your equipment, if you currently own it. Using a sale-leaseback, you sell your equipment to an equipment leasing company with the stipulation they lease it back to you, typically at a lower monthly payment than you were previous paying.
This can also free up some monthly cash flow, and while there are pros and cons to owning or leasing equipment, this solution may make sense for your particular situation.
The Best and Easiest Solution: Invoice Factoring
By far, invoice factoring is the best solution for any construction business struggling with cash flow problems. It allows you to benefit from an influx of immediate working capital, and it doesn’t matter how big or small your company is or the status of your credit history.
One of the reasons construction companies, in particular, suffer from cash flow problems is because of the 30 – 90 days they often have to wait to get paid after a project is completed.
Invoice factoring eliminates the waiting period by providing immediate funds you can use to meet payroll, pay taxes and vendors and take on new and bigger jobs. This helps your business grow and expand, and you’re able to do that without incurring any debt.
How Invoice Factoring Works:
- CapitalPlus underwrites your firm and your clients.
- You invoice your client and send a copy of the invoice to a factoring company, like CapitalPlus.
- CapitalPlus sends you about 70-80% of the invoice value in cash funds you can immediately use. You’ll typically receive your funding within a matter of hours.
- When your client pays the invoice to the factoring company, you’re paid the balance of the invoice less a modest fee the factoring company takes out.
Banks typically see construction as a space too risky for their taste. Even if they have an appetite. Before approving a loan, the bank will look at your company to determine if it’s financially sound. The size, age and credit worthiness of your business will be scrutinized. And if your loan is finally approved, it can take a month or more and you’ll have to pay it back, with interest.
Factoring eliminates all that, including the waiting and the payback, and looks instead at your client’s credit history. Factoring companies are more concerned about the creditworthiness of your client, rather than the size of your company or your credit history.
The Bottom Line
The bottom line is this… you don’t have to lose a good employee because you can’t pay them on time. Invoice factoring ensures you’ll always have enough cash flow for payroll and other expenses. If you’re struggling with cash flow, even if it occurs more than once, and you have a customer base of creditworthy clients, your business can benefit from invoice factoring.