How many times have you gotten a call at the end of the week from one of your subcontractors pleading for a check so they could cover their payroll? We hear this all the time from general contractors who are looking for a solution to this problem.
Fortunately, when general contractors partner with an accounts receivable factoring company, to help their subcontractors get the working capital they need, it is a win-win-win solution for everyone. With accounts receivable factoring, the subcontractor gets paid earlier, giving them access to the working capital they need when they need it. The general contractor is working with someone they know and can authorize all the payments without having to pay the subcontractor before they get paid and the accounts receivable factoring company is more comfortable knowing that the general contractor is going to pay since they authorized the payment to the subcontractor.
Partnering with an accounts receivable factoring company also helps to assure the general contractor that your subcontractors will be able to keep working, providing you with a constant work flow. Accounts receivable factoring is able to provide this benefit because it offers the subcontractors the working capital they need to make payroll, pay taxes and purchase supplies so they can keep working.
If you are not familiar with accounts receivable factoring, here is how it works. First the subcontractor submits an invoice for the work they have completed to the general contractor and a copy of the invoice to the accounts receivable factoring company. Second, the accounts receivable factoring company wires up to 80% of its value into the subcontractor’s bank account that day, then holds the remaining 20% in escrow. Third, the subcontractor’s customer, or general contractor, sends the factoring company the payment when the invoice is due. Finally, the factoring company remits the balance of the escrow less a fee to the subcontractor.
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