Paid-when-paid contracts can cause cash flow challenges for many contractors. Construction factoring can help you get the funds you need immediately to cover your expenses if waiting a minimum of 45-60 days to get paid is making it difficult for you to cover expenses such as payroll and materials.

Factoring can provide relief to your business by making it so you don’t have to wait for the owner to pay the GC and then for the GC to pay you, you can get the funds immediately after invoicing the GC. Factoring also eliminates your risk of providing the work and having another issue, that is out of your control, hold up the payment to you.

The Four Easy Steps to Construction Factoring

Factoring can provide your business with a continuous source of operating capital.

Here is how it works:

  • You send your invoice to your customer and a copy to the factoring company.
  • You receive up to 80% of the invoice from the factoring company.
  • The factoring company collects payment from your customer when the invoice is due.
  • The factoring company pays you the balance of your invoice amount, less a fee.

Benefits of Working with a Factoring Company

If you go to a bank for a loan they will consider whether your company is financially sound. Factoring companies don’t look at the size of your business, how long you have been in business or your creditworthiness. In fact, factoring companies look at the creditworthiness of your customers. If your business has a creditworthy commercial customer base with unpaid invoices you can benefit from factoring.

Additional benefits of accounts receivable factoring:

  • The business owner does not incur any debt as they are “selling” the receivable as long as their customer pays the invoice.
  • You are able to take advantage of early payment discounts from suppliers, as the factoring company will often pay your creditors right away.
  • The factoring company can provide you credit information on your clients to better determine pricing on the project and the creditworthiness of your client.
  • You can concentrate on building your business and making money instead of wasting your time worrying about when you are going to get paid.

Construction factoring may not be the first option you think of when thinking of a working capital solution for your business for paid-when-paid contracts, but it can be an excellent solution to your cash flow challenges. There truly are few downsides. It can be just what you need to get the cash for your business to make payroll, buy supplies, pay vendors, and grow your business and not have to wait for payment on your paid-when-paid contracts. Give us a call and we can discuss if factoring is right for you.

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