In the dynamic world of construction, financial foresight is not just beneficial – it’s essential. Having a backup plan for unexpected financial challenges is crucial. One such strategy is setting up an accounts receivable (AR) factoring account. Even if you don’t anticipate using it immediately (or ever), the benefits of being proactive will save you time if you do. Let’s explore reasons why creating a relationship with a factoring company and setting up an AR factoring account is a wise move for every construction business.
Assessing the Right Factoring Partner Without Pressure
Every financial option, factoring included, requires finding the right businesses to work with. Perfect fit requires research. You need to compare companies well before they’re in dire need of cash. Early assessment allows you to compare factors like fees, advance rates, and customer service quality. This proactive step ensures that when the need for factoring arises, the business is already aligned with a company that best fits its specific needs and industry nuances.
>> READ MORE: How to Pick the Right Factoring Company for You
More Time to Understand and Negotiate Factoring Terms
During the initial talks with a factoring company, you can discuss and be able to negotiate the terms of a factoring agreement before ever sending your first invoice. This proactive step allows construction businesses to clarify terms such as the recourse period, fees, and the handling of unpaid invoices. Negotiating these terms in a non-urgent setting can lead to more favorable conditions and a clear understanding of the agreement, thereby reducing future financial risks.
Learn About Other Support Options
Building a relationship with a factoring company early means you will understand the multiple solutions, factoring included, that the company offers. As the factoring company becomes more familiar with the specific needs and operations of your business, it might offer other financial options that are a better fit. For example, our company, CapitalPlus Financial, also offers materials financing and lein support. Though you might not need these services, having someone who knows your business means you will continually be educated in additional ways to support your construction business.
Plus, having their “ear-to-the-ground” of the industry, the Factor might hear and share with you something that benefits your business.
Account Setup Before It’s Needed
When you apply for factoring services, the bulk of the time involved is the pre-factoring process. Having filled out all necessary forms, submitted all documentation, and completed the onboarding checks means all the time-consuming work has already been done. When you choose to use factoring, only a few steps are left.
Case Studies: Clients That Have Benefited from A Factoring Relationship
Setting up an account (or taking advantage of an older, existing factoring account) gives construction businesses financial options. A few examples of actual clients who have taken advantage of a previously set up factoring account.
Example One: Concrete Rebar Contractor in Florida
This client had been a repeat CapitalPlus client in the past but due to success had outgrown the need for factoring. Primarily working on Amazon warehouses across the Southeast, they were rewarded with offers for several more warehouse contracts over the next year. This would require substantially increased staff and payroll to fill the orders.
Because they had been a CapitalPlus client in the past, their account was still in place. After a few small updates, the contractor was able to get funded in less than 48 hours ensuring they were able to make their weekly payroll.
Example Two: Finishing Contractor in Maryland
Again, this client was a successful contractor whose growth allowed them to move from CapitalPlus’s factoring to using bank lines of credit. However, due to the construction industry’s uncertainty during COVID, their bank decided to get out of funding construction-related companies.
Like the previous example, having an existing account with CapitalPlus made reapplying for factoring simple and quick. The contractor’s business was able to pay off its existing $300k line of credit with its bank and have the additional working capital it needed to stay on schedule.
Navigating the financial currents of the construction industry requires foresight, preparation, and strategic partnerships. Proactive preparation for accounts receivable factoring is not just a safety net; it’s a stepping stone toward financial resilience and growth. As we’ve explored, taking the initiative to understand, prepare, and establish relationships in the factoring realm can make a significant difference in how your business withstands and thrives in the economic fluctuations of 2024.
Don’t wait for a financial crunch to explore your options. Start today by assessing potential factoring partners, understanding the nuances of factoring agreements, and preparing your financial documentation. Remember, in the world of construction finance, being proactive is not just about survival; it’s about building a foundation for enduring success. Reach out to a trusted factoring company, set up a factoring account, and take the first step toward having options for your business’s financial future.Back to blog