Despite the current success of many construction subcontractors, they often have difficulty in obtaining financing. This creates problems since their clients generally have up to 60 days to pay their invoices, while subcontractors must still come up with the funds to handle the salaries of their employees and bills due to suppliers. One solution to this cash flow dilemma is construction factoring. Here is some information about this method of financing so that you can assess its suitability for your business.

How Construction Factoring Works

With construction factoring, you partner with a factoring company to receive quick funding for your unpaid accounts receivables. After you complete the work and invoice your clients, the factor advances you 70 percent or more of the invoice’s value. Once your customers pay their bill in 30 to 60 days, you receive the balance of the funds, minus the finance company’s fee.

Qualifying for Construction Factoring

Your company will find it much easier to qualify for construction factoring than for a traditional business loan. The most important consideration is that your clients need to be creditworthy because their invoices comprise the collateral for the advance. The accounts receivables must also be lien-free, and your company should generally have a good work record. Your company cannot be bonded, because bonding usually means that there are liens on the invoices.

Benefits of Construction Factoring

Construction factoring offers a means of strengthening your company’s cash flow when your clients are slow in paying their bills. You obtain immediate cash for pressing financial needs. This enables you to feel more confident in providing competitive terms to your customers, knowing that you will receive the funds you need in advance of their eventual payments. With construction factoring, you do not need to surrender any equity in your company. As your business grows, so does the financing available to you through construction factoring.

For more advice on financing your subcontractor business through construction factoring, get in touch with our team.