How to Finance a Roofing Company

One of the greatest challenges of running a roofing company is that most commercial clients and general contractors pay their invoices in 30 to 60 days. This delay can be a problem for roofers, since many can’t afford to wait up to eight weeks for payment. Most roofing companies don’t have a cash reserve or line of credit that allows them to cover expenses while waiting for customer payments.

This inability to cover expenses leaves roofers in a difficult situation. They are always juggling payments, trying to meet all their commitments. But it is difficult to juggle payments for a long period of time. Eventually, you end up missing a supplier payment or, worse, payroll. That’s when the real problems start.

Early-payment discounts provide client financing

If your cash flow problems are not serious, consider offering clients an early-payment discount. This approach, if done correctly, can improve your cash flow quickly.

As its name implies, an early-payment discount works by offering clients a discount if they pay the invoice in 10 days or less. Discounts are negotiable, but most companies offer around 2%. If possible, get the early-payment discount agreement in writing, as it will help avoid potential problems.

While offering a discount for an early payment can improve your cash flow, success is not guaranteed. Early payments are optional, and clients can choose to pay early or slowly based on their own cash flow.

However, discounts are a good first step toward improving your working capital.

A better option: finance slow-paying invoices through factoring

For many roofing contractors, a better option is to finance slow-paying invoices. This strategy improves your cash flow immediately, providing immediate access to working capital. Funds can be used to pay construction suppliers, employees, or start new projects.

You can finance your invoices using a specialized type of financing called construction receivables factoring. This solution works by financing your invoices in two installments. The first installment covers up to 80% of the invoice and is deposited to your account as soon as you issue the invoice.

The second installment covers the remaining funds and is deposited to your account when your client pays the invoice. The finance fee is deducted from the second installment. To learn more about how factoring works, read “What is Factoring?

Can all invoices be financed?

The qualify for financing, you must meet the following criteria:

  1. Your invoices should be payable by a creditworthy general contractor or commercial client
  2. The work – or work segment – must be completed
  3. Your invoices should be payable in up to 60 days
  4. Your invoices should not be encumbered by liens
  5. You must be a direct contractor or a subcontractor for a GC

Advantages for roofers

The main advantage for a roofing company is that qualifying for factoring is much easier than getting conventional funding. The most important criteria to qualify is that your clients must have good credit. This type of financing allows you to use your client’s credit to your advantage.

Another benefit of factoring is that the line is flexible and can be increased easily, as long as your invoices meet the funding criteria. This benefit is important because it can help your company when you win a larger project.

Selecting the right lender

Finding the right factoring company can be a challenge for roofing companies because they often work with both direct commercial clients and with general contractors.

Conventional factoring companies may be able to finance your commercial client invoices, but they won’t be able to finance your GC invoices. General contractors often provide progress payments and have contracts with “pay-when-paid” clauses, which most regular factors can’t work with. Most roofers need to work with a company that can finance both types of invoices.

When interviewing a construction factor, be sure to ask:

  1. How long have they been in business?
  2. Do they work with general contractors?
  3. Are they comfortable with progress payment invoices?
  4. How do they handle “pay-when-paid” clauses?

To learn more, read “How to Find and Select the Best Construction Factoring Company“.

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