Financing For Utility Construction Companies

Working with utility companies can be very profitable. Most utility companies have excellent credit ratings, pay on time, and make for great long-term clients.

However, there is one catch: most utility companies negotiate vendor contracts which allow them to pay an invoice in up to 60 days. Consequently, your utility construction company must have enough money to pay its operating expenses while waiting for clients to pay invoices. This delay can be difficult for small construction companies without reserves. It can also be challenging if a company is growing quickly, adding personnel, or buying equipment.

One way to solve this problem is to use business financing.

The problem with conventional financing

You can certainly use conventional business financing to solve this cash flow problem. A line of credit could easily help you cover corporate expenses while you wait for utility clients to pay invoices.

The problem with a line of credit, or most conventional products, for that matter, is that they are difficult to get. Most banks provide financing only to companies that meet stringent criteria. First, the company must be profitable and have collateral. Second, they must have a long track record of success. Lastly, they must be able to provide impeccable financial statements.

Additionally, banks often prefer to work with larger companies that also need other financial products. As a result, few small utility construction companies can get bank financing.

A better option: construction factoring

If your biggest cash flow problem is slow-paying invoices, you can solve the problem by financing your construction receivables. Construction factoring allows you to finance invoices from customers with good commercial credit. And since most utility companies have great credit, this solution lends itself well to utility contracting.

The program works by partnering with a construction factoring company. The factor reviews the credit quality of your invoice and advances funds to your company, usually in two installments. The first payment covers 80% of the invoice and is wired to your account. The remaining 20% (less financing fees) is rebated once your utility customer pays their invoice on their usual schedule.

Why is construction factoring better?

Construction factoring can be an ideal alternative for utility contracting companies for three reasons:

  1. The facility is easier to get than conventional bank financing and is designed to help small companies without much collateral, other than invoices from great-paying clients.
  2. The factoring line also improves your cash flow quickly and effectively. You can use it to provide payment terms to your clients without having to worry about slow payments.
  3. Lastly, the line does not have a fixed limit like most lines of credit. It can grow with your revenues, as long as your company meets the factoring qualifications.

Does my company qualify?

The most important requirements for construction factoring are having good billing practices and working with clients that have good commercial credit. As a utility contractor, you have an advantage on the second point since utility companies are regulated and usually have good credit. Additionally, your company should:

  • Have unencumbered accounts receivable
  • Be free of legal and tax problems
  • Have reasonable profit margins

If your company meets these criteria, then factoring should be able to help you. Construction factoring is an ideal option for fast-growing utility companies with working capital issues because of slow-paying clients.

Get more information

We are a leading construction factoring company and can provide you with competitive terms. For information, get an online quote or call (877) 300 3258.