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.
Commercial Capital LLC offers 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.
How does construction factoring work?
Construction factoring is simple to use and works well with most subcontractors. We finance your accounts receivable in two installments.
The first installment covers 70% to 80% of your invoice, less retainage. This installment is deposited into your bank account shortly after the factoring company processes the invoice.
The remaining 20% to 30%, 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.
To learn more, read “How Does Factoring Work?”
Clear benefits
Using a construction receivables factoring program has several benefits. These include the following:
- 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 important component of a construction factoring program. It provides the upfront working capital injection that helps improve your company’s cash flow.
Commercial Capital provides competitive advance rates 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.
Simpler qualification
The qualification requirements for construction factoring are simpler than getting bank financing. The most important requirement is that you work with general contractors or commercial customers who pay invoices reliably in 60 days or less. Also, your company must meet these criteria:
- Minimum monthly revenues of $50,000
- Must be a subcontractor
- Must not have a bond for the project
- Receivables must be free of liens
- No major legal or tax problems
Note: Regarding item #3, the GC or builder may have a bond for the project.
Who can benefit from our services?
Companies that can benefit from our services include:
Is construction factoring right for your business?
Our program may help your business improve its cash flow if the following apply:
- You work as a subcontractor
- Your invoices are paid in up to 60 days
- You need money sooner to pay company expenses
- You turn business away because you lack working capital
- Your accounts receivable aren’t encumbered liens
Limitations
Construction factoring programs have three limitations that you should be aware of. These should be considered when determining whether factoring is right solution for you.
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.
To learn more, read “How to Choose the Best Factoring Company for Your Business.”
Want to learn more about our solution?
Are you looking for a construction factoring company? We want you to make an informed decision about our services. To learn more about construction factoring, visit our learning center.