Spot factoring may be just what you need if you’re experiencing a sluggish cash flow. Cash flow problems pose a serious threat to the health and continued growth of your construction company.
Without a steady stream of cash coming in, it’s harder to invest in new or larger projects, pay down debt, or meet payroll and other expenses.
If you struggle to maintain consistent cash flow, you may find spot factoring is a quick and painless solution to your problem. Before we dive into what spot factoring is and how it can help you, let’s take a look at some common issues that could be the reason behind your company’s cash flow troubles.
What Causes Cash Flow Problems?
High Overhead Expenses
These expenses, which are not directly tied to selling your product or service, can cause a serious cash drain if mismanaged. These expenses include things like rent, utilities, internet, and phone lines. While they are essential to running a business, their cost can get out of control if not monitored properly.
Payroll is among the top factors that contribute to poor cash flow. This is because you must pay your employees, even when your clients have not paid you. Covering payroll each month can leave you with little to no cash if your clients have not paid you on time.
Growth is a good problem to have, but it is still a problem. As more and more clients sign contracts and new projects are launched, you will need to float additional costs. You will likely need to front-load a lot of your expenses and will need plenty of cash on hand to get each project started.
While you will receive payment for all these costs, it is likely not going to come until the project is completed. This can leave you in the red, especially if you still have numerous unpaid invoices from previous clients.
This is mentioned multiple times and for good reason. Slow-paying clients cause a major block in cash flow for any construction company. If you aren’t paid in a timely manner, it’s hard to make your own payments when they’re due. It’s also difficult to begin new projects, which abruptly halts your growth.
Construction invoices take an average of 83 days to be paid, which is nearly the longest wait time in any industry. When you have bills to pay and projects to complete, unpaid invoices can seriously damage your progress.
Spot Factoring May be the Answer to Cash Flow Problems
If your construction company is struggling to maintain strong cash flow month after month, spot factoring may provide you with a solution.
What is Spot Factoring?
A company offering spot factoring will purchase one (or more) of your unpaid invoices and pay you a percent, usually 70 to 80%, of the invoice’s value right away. The factoring company will wait to receive payment from your client. When the client pays, the factoring company will send you the remaining 20-30%, less their fee.
How Spot Factoring Helps Cash Flow
Spot factoring gets you your cash faster than if you had to wait on your client. This means more cash in your pocket when you need it.
Spot factoring gives you the freedom to receive payment for a single invoice or a series of invoices, depending on your needs. You can control the number of invoices you factor as well as when you factor them. This allows you to increase your cash flow as needed, according to your timeline.
No construction company owner likes to see their cash flow slow down. Spot factoring gives you a strong defense against cash flow issues and ensures you’re able to continue paying your bills and growing your business.
Where to Go to Fill Your Spot Factoring Needs?
At CapitalPlus we understand the construction business and how essential it is for you to have cash on hand. That’s why we offer spot factoring services in addition to our other construction factoring services. If you are in need of greater cash flow now, contact us today to see if spot factoring is right for you. We can get the process started and get you paid in as little as 72 hours.
- PwC. “Navigating uncertainty: PwC’s Annual Global Working Capital Study, https://www.pwc.com/gx/en/working-capital-management-services/assets/pwc-working-capital-survey-2018-2019.pdf”