Drywall installation companies with temporary cash flow problems find that factoring their invoices is a viable way to pay bills, and even grow their business when they have late-paying clients. There are many advantages to invoice factoring for those in the drywall trade, but there can be a few disadvantages as well. Read on to learn about the various pros and cons of factoring to discover if this may be the right solution for you
Advantages of Invoice Factoring for Drywall Businesses
You Get Access to Working Capital… Fast
This is the #1 reason drywall companies choose to partner with a factoring company – speed. Compared to other forms of funding like bank loans, factoring can be obtained much faster. Having quick access to working capital allows you to continue to fund new and current projects, pay your workforce, manage your overhead, and continue to grow your business. Without that cash flow, you can’t continue to operate. Invoice factoring allows you to grow without relying solely on your clients’ timely payments.
You Can Keep Your Extended Payment Terms
Invoice factoring helps your drywall business continue to extend 30 to 90-day payment terms to your clients. A factoring company will ensure that you are paid quickly for those invoices, so you don’t have to miss out on deals with other jobs that need extended payment terms.
As long as you have delivered on the project agreement with your client, you will be able to collect your funds from the invoice company and they will handle receiving full payment from the client.
You Can Qualify Easily
It can be a difficult and lengthy process to qualify for other financing solutions, but invoice factoring provides a relatively simple qualifying process. Most companies are able to contract with a factoring company easily if their invoices reflect already delivered work with creditable clients.
And being bonded is also not usually a problem.
The only other thing that may stop you from being able to partner with a factoring company is a lien or legal issues with your company. If you are free of those, you should be able to receive invoice factoring services without issue.
Only Your Invoices are Collateral
Loans and credit lines often require substantial collateral. Invoice factoring, however, only uses the invoices as collateral. This means you can keep your equipment, materials, and other assets separate.
Small Drywall Installers Can Use Invoice Factoring
A regular business loan can be hard to get if you’re a small business, especially one in construction. However, factoring helps even small drywall companies maintain cash flow, even with late-paying clients. This is a powerful solution for smaller companies looking for a way to grow their business.
Disadvantages of Invoice Factoring for Drywall Contractors
It Can be Expensive
While factoring allows you to get your hands on cash fast, the fees are typically higher than other forms of financing like bank loans. Because every factoring company operates differently, it is important to communicate with them about their rates in order to find the best solution for your business.
You’ll Need to Properly Communicate Relationships
When you sign a contract with a factoring company, you agree that they will pursue payment from your clients. This means that they will receive a Notice of Assignment, which will alert them to your relationship with the factoring company.
When you use factoring, your clients will be in contact with the factoring company. If this is something that bothers you, it may not be the right solution for you. However, most clients understand this common practice and are untroubled by it.
Factoring Companies Don’t Handle Bad Debt
Though it’s rare, sometimes clients simply do not pay their invoices. While factoring companies will pursue invoice payments from your clients, they are not a collection company. Ultimately, you will be responsible for any bad debt that occurs through unpaid client invoices. If this is a risk you are unwilling to take, invoice factoring may not be the best choice for you.
Get Paid Fast with CapitalPlus Invoice Factoring
Invoice factoring can help your drywall business continue to thrive. Contact CapitalPlus to learn more about how you can get paid within 72 hours. We look forward to serving you.Back to blog