Construction factoring allows subcontractors to finance invoices from commercial clients, general contractors (GC), and builders. It provides working capital to pay employees, suppliers, and other company expenses.
We offer competitive terms and can work with subcontractors that invoice at least $50,000 monthly. Our programs have simple qualification requirements and can be set up quickly.
For more information or a quote, fill out this form or call us toll-free at (877) 300 3258. Services are available in the USA and Canada.
Is construction factoring for you?
Our specialized program can help your construction business improve its cash flow. We work with subcontractors that meet this criteria.
a) You wait up to 60 days for payment
This is a common problem for subcontractors. They have to wait 30 to 60 days to get paid by commercial clients, general contractors, and builders.
b) You are a subcontractor
Construction factoring can be used only by subcontractors. Unfortunately, we do not offer the problem to GC’s.
c) You work with commercial clients
Factoring companies can only finance commercial invoices. The payments must be due from creditworthy commercial clients, builders, and GC’s.
d) You invoice at least $50,000/month
We offer the program to subcontractors that invoice a minimum of $50,000 per month. Unfortunately, we are unable to offer this program to smaller subcontractors.
e) Your A/R isn’t encumbered
Factoring companies use your Accounts Receivable (A/R) as collateral. Consequently, it cannot be encumbered by any financing (e.g., loans, etc.)
How does construction factoring work?
Our construction factoring program is easy to deploy and simple to use. Your invoices are financed in two installments.
The first installment covers 75% to 85% of your invoice, less retainage. This installment is deposited into your bank account shortly after the factoring company processes the invoice.
The remaining 15% to 25%, less the factoring fee, is deposited into your bank account once your client pays the invoice. Your builder, GC, and commercial clients don’t need to pay any sooner. They can pay on their usual terms.
Program benefits
A construction receivables factoring program provides you with several benefits, such as:
- Get funds quickly
- Improved cash flow
- Offer net-30 terms to clients with confidence
- Simple qualification
- Quick deployment
Competitive advances
A high advance is an essential component of a construction factoring program. It provides the upfront working capital injection that helps improve your company’s cash flow.
We provide competitive advances from 75% to 85% to qualified subcontractors. The advance rate varies based on the transaction’s risk profile.
Note that construction factoring advances are generally lower than advances for other industries. This is because construction-related invoices have a different risk profile than conventional invoices and require a higher level of due diligence.
Who can benefit from our services?
Companies that can benefit from our services include:
Things to keep in mind
Construction factoring programs have three differences from conventional plans that you should know.
a) Pay-when-paid
Construction invoices are often subject to a “pay-when-paid” clause. This clause enables the GC to pay you only after the client pays them. These invoices can’t be financed unless the GC is willing to waive this clause. Otherwise, you will have limited recourse if the GC defaults on an invoice due to a client’s non-payment.
b) 10% retention
Construction-related invoices are often subject to a 10% retention which is paid only at project completion. Retention invoices can’t be factored due to their risk.
c) Detailed verifications
Factoring companies regularly verify invoices to ensure they are accurate. Some construction-related invoices may have more detailed verifications, especially if due from a progress payment.
How to select the right construction factor
Choosing the right financing partner is critical to the success of your construction company. Spend some time interviewing potential partners to ensure they are a good fit for your business. Questions you can ask include:
1. How long have they been in business?
Work with a factoring company that has been in business for a few years. Finance company longevity usually shows that the company can manage its portfolio in different economic environments.
2. Are they comfortable with construction transactions?
Many factoring companies can accommodate some construction transactions as long as they are simple. These transactions don’t have progress payments, don’t involve a general contractor, and have simple payment terms. However, their experience in construction is limited.
You are usually better off with a factoring company that specializes in construction financing. They have the industry knowledge to handle complex transactions.
3. How do they handle progress payments?
Construction factoring companies can handle progress payments. Familiarize yourself with their procedure beforehand to ensure it works for your business.
4. What terms do they offer?
Inquire about their terms to ensure they work for your business. The advance should be high enough to have a meaningful impact on your cash flow, while their factoring rates should not substantially impact your profits.
Useful reading
We have 20 years of experience and have developed a comprehensive learning center. Here are some useful articles: