Getting paid is always a challenge in the construction industry, especially for subcontractors. Most construction subcontractors work with principal contractors and end employers under a contractual arrangement that uses progress claims. The subcontractor raises an invoice once a stage of the project is completed and then waits 30 to 60 days to get paid.
The problem is that many subcontractors can’t wait that long for a payment. They need to get paid sooner so they can pay their own suppliers and employees. But, as a subcontractor, you have little choice. Most customers pay their invoices in 30 to 60 days.
You can solve this cash flow problem by financing invoices using a progress claim finance programme.
What is progress claim financing?
Progress claim financing is a specialty type of debtor finance. It allows you to finance invoices that are paid on a progressive basis by commercial clients. Once you raise the invoice, you don’t have to wait for the principal contractor or end employers to pay you. Instead, you finance the invoice and get immediate funds from the debtor finance company. The benefits to your cash flow are immediate.
These programmes operate somewhat differently from conventional factoring and debtor finance facilities. However, the basic operation remains the same. Progress invoices are financed in two separate payments.
Your company gets the first payment once you raise the invoice with the customer. This initial payment covers about 70% of the value of the invoice. The second payment, the remaining 30% (less fees), is deposited to your bank account once the invoice is paid in full by your customer.
Most subcontractors who use debtor financing use it regularly. This strategy allows them to keep a stable cash flow, which enables them to manage the business more effectively.
An alternative to commercial overdrafts
Most small and medium-size subcontractors often use a commercial overdraft facility to finance their businesses. While commercial overdrafts have some advantages, they also have some problems. They require collateral, such as real estate or personal property. They also have inflexible limits that are governed by your current assets rather than by your sales potential. Lastly, the approval and qualification process can take weeks – or longer.
Progress claim financing provides a great solution for growing contractors whose most important assets are their commercial clients. It can provide a number of the benefits of overdraft facilities, but with more flexibility – making it a perfect choice for small and growing companies.
Important benefits for subcontractors
Using a progress claim financing programme offers a number of advantages for subcontractors. The obvious advantage is that your cash flow improves. A progress claim financing programme also:
- Allows you to extend net-30 terms with confidence
- Is easier to get than an overdraft facility
- Offers a flexible line that grows with your business
- Does not require real estate security
- Can be deployed quickly
Is progress claim financing right for your company?
A debtor finance programme that finances progress claims can help you if your company:
- Operates under the Security of Payment Act
- Works as a subcontractor
- Has principal contractors or end employers as clients
- Invoices companies that are creditworthy
- Gives clients 30 to 60 days to pay but needs to be paid sooner
Types of contractors that can use this solution
This type of financing can be used subcontractors in most trades, including:
- Electrical contractors
- External facades
- Roofing contractors
- Pipe fitters
- Plumbing contractors
- Flooring contractors
- And more.
Need progress claim financing?
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