Factoring for the Construction Industry
If you are in the construction industry and run a project or site, you know cash flow can be limited. Payments may come in slowly, which makes it challenging to sustain your business. One option for overcoming this issue is to consider construction invoice factoring. While the topic of factoring can be intimidating at first, at the core, it is beneficial and straightforward.
If you want to learn more about construction factoring, keep the tips and information found below in mind. This will help you make the most of this opportunity.
The Basics of Construction Factoring
With construction factoring, a subcontractor can borrow against their existing receivables. With factoring, you acquire cash advances for your current invoices. When you factor a construction invoice, the company will assign the invoice to the actual factoring company. The construction company is then given cash, usually on the spot.
How to Factor a Construction Invoice
The first step taken during construction invoice factoring requires that your company agrees to work with the factoring service and to factor existing invoices. Usually, the factoring company will pay between 70% and 80% of the total invoice’s value. This cash payment is provided weeks or even months before the client is scheduled to pay.
At this point, the invoice (i.e., bill) transfers ownership to the factoring company. This means it is up to the factoring company to collect on it. After the factoring company is paid, it will provide the remaining 20% to 30% to the client, minus their fee for the funds.
Why Factoring May be a Good Option for Your Construction Business
In many situations, construction payments come in slowly. When you factor your invoices, you can get payment on most of your invoice 20, 30, and sometimes even 40 days sooner than you would otherwise. Also, if the factoring company is paid in full quickly, the construction company is only going to lose a very small percentage of the total invoice. This makes it worth the time and effort.
Find a Quality Factoring Company for the Best Results
When it comes to construction factoring, there are a few nuances that must be understood. When you know what factoring has to offer, you can also see how it could benefit your business and efforts. Take some time to find a company that has the experience and a positive reputation in the industry for the best possible results. In the long run, this will pay off and help you continue to grow and build your construction company.
