Construction Factoring
Precarious Situation
When James Guy needed additional working capital to support his daily needs, he turned to Gateway Commercial Finance. “We’re a third-generation metal and Iron construction company that suffered a rough downturn during 2009 & 2010. Our banker had helped us as much as he could but was out of options just as we started to climb out of our sales slump. He recommended factoring and gave us a couple of companies to call. We settled on Gateway as they were familiar with the construction industry and were prompt and personable.“
We were very familiar with James’s situation and looked at his pipeline of new projects. He’s got an excellent customer base and a solid reputation in his field. His situation is atypical for many contractors that survived the last few years, highly leveraged with minimal operating profitability. “Gateway listened to our situation and provided a solution that worked well for the both of us…Gateway is like having a safety net below”
Structurally Sound Solutions
Construction factoring companies support your daily cash needs
If your business has unpredictable cash flow, invoice factoring can help by turning your outstanding bills into cash quickly. This convenient funding service makes it simpler to manage your finances and pay your workers on time.
Construction company factoring provides consistent cash flow and uninterrupted business, even if payments on invoices are not made in a timely manner. Your business can effectively cover expenses, buy materials, pay subcontractors, and get new jobs by speeding up cash flow.
How Construction Factoring Works
Obtaining a construction factoring account takes only a few business days. Once approved, invoices from creditworthy customers can be sold and cash received for operating expenses. Here’s how factoring works:
Step One: Submitting Unpaid Invoices
To utilize construction factoring services, your construction company should first compile a list of outstanding customers & invoices or draw requests that it wants to factor. The invoices must meet specific criteria, such as:
- Service to the client is final, or progress payments are due.
- The service is provided to a business.
- Due date of the invoice falls within the accepted time frame of the factoring company.
After you have confirmed that all your invoices are processed, you send them to the factoring company together with any supporting documents required, such as lien release waivers, change orders, timesheets, progress billing reports, or other contract documents attesting to the completion or progress of work.
Step Two: Receiving Advances on Invoices
Following the submission and validation of the un[aid invoices, your construction company would usually be paid an advance against factored invoices within 24 hours of submission. Advance rate varies significantly between factor companies and agreements but generally lies between 75% to 85% of the invoice value. The remainder is placed on hold until payment is collected by the factoring company from the commercial client.
Step Three: Payment Collection and Release of Reserves
In your customer’s usual business operations, when payment on the invoice is submitted, it is sent to a P.O. box which is managed by the factoring company. Upon receiving payment, the factoring company deducts a fee from the amount of the cash reserve and pays you the remainder.
Here's a non-exhaustive list of the industries we serve, including details. Click on each industry to read success stories and reviews.
The following industries often use invoice factoring to boost their cash flow. Please read the reviews to learn why different businesses use our factoring company and all the benefits they get from this service.
Why Gateway Commercial Finance Should Be Your Construction Factoring Company?
- High Funding Capacity: We offer factoring lines up to $10 million, allowing you to scale your construction business confidently.
- Flexible Factoring Options: Choose which customers and invoices to factor, giving you control over your funding.
- Competitive Rates: Our discount rates start as low as 1% for the first month, with up to 85% advance rates.
- No Credit Score Worries: Your company’s credit score does not affect your eligibility, making our services accessible to many construction businesses.
- Flexible Factoring Agreements: We offer both recourse and non-recourse factoring options with no long-term contracts or monthly minimums required.
- Fast Access to Funds: Get your funds within 24 hours of setting up your account.
- Detailed Reporting: Our 24/7 online platform allows you to access real-time reports on invoices, collections, and reserve balances, giving you complete visibility into your finances.
- Confidential Transactions: We handle customer payments discreetly through a managed P.O. Box, maintaining the confidentiality of your factoring arrangements.
- Industry Expertise: Our team specializes in construction factoring and understands the industry’s unique cash flow challenges and cycles.
Take the Next Step in Growing Your Construction Business
Don’t let cash flow issues hold back your construction contracts. Call us at 1-855-424-2955 to speak directly with a director.
Types of Construction Businesses That Benefit From Factoring
Below is a summary of some construction firms that tend to benefit from construction factoring services.
Construction Subcontractors
Subcontractors are ideal customers for factoring companies. Regular delays in payment from owners or general contractors can be frustrating. Construction factoring provides a cash advance against unpaid invoices, helping subcontractors to maintain healthy cash flow as they wait for payments.
Specialty Contractors
Specialty contractors, such as preparation, utilities (above and below grade), concrete, framing and drywall, plumbers, electricians, low voltage and security, HVAC, painting, roofing, hardscape, landscape, telecommunications, locating, infrastructure, and paving contractors, typically face payment delays that hinder their growth. Construction factoring allows them to convert unpaid invoices into instant working capital so that they can accept new jobs and expand their businesses without cash flow constraints.
Benefits of Construction Invoice Factoring
Invoice factoring helps construction contractors maintain regular cash flow by funding outstanding invoices as working capital. The funding service is crucial in maintaining the cyclical pattern of the construction business, staying competitive, and avoiding the pitfalls of late payments and delays associated with traditional bank loans.
The main benefits of this accessible funding service are:
1- Improved Cash Flow Management
Construction invoice factoring provides a quick cash flow boost for companies by allowing them to sell their accounts receivable and receive a cash advance within 24-48 hours. Such an instant advance facility streamlines finances and disburses funds in advance for exigencies as well as future outlays, without requiring customers to wait for payments to settle.
2- Timely Payroll Settlement
Construction projects require a big workforce and timely payments. Construction invoice factoring typically allows businesses to access over 80% of the invoice amount upfront, enabling them to meet payroll obligations without delay and ensuring workforce and project continuity.
3- Opportunity for New Projects
Factoring services provide construction companies with instant access to capital locked up in unpaid invoices. The advanced funds allows them to bid on new projects and gain an advantage in a competitive world, ultimately leading to business growth and increased revenue streams.
4- Reduced Administrative Burden
Managing construction accounts receivable can take time and effort. Construction factoring businesses can assist by tracking outstanding invoices and reducing the administrative burden on businesses. The free service enables businesses to concentrate on core tasks such as project management and customer service, resulting in smoother operations and lower overhead expenses.
Differences Between Construction Factoring and Traditional Financing
Construction factoring is not the same as traditional financing. Traditional financing is based on the credit score of the borrower, but access to construction factoring services depends on the creditworthiness of the construction company customers.
Invoice factoring allows construction contractors to retain cash flow with less stringent credit requirements of other alternatives, thus making it viable for companies at diverse levels of expansion.
Speed of Access to Funds
Factoring enables construction firms to get money faster than traditional financing. Once a relationship with a factoring company is established, cash can usually be advanced within 24 to 48 hours of submitting outstanding invoices for factoring. Traditional bank loans, however, usually have tortuous application procedures, underwriting, and approval processes taking weeks or even months.
Credit Requirements
Traditional bank loans consider the credit record of the construction firm. On the other hand, factoring companies consider the payment record and financial standing of the customers of the construction firm, making it possible for construction firms, even those with poor credit, to access the service.
- The construction company’s credit may be considered, but it is often not the deciding factor.
- No minimum credit score is generally required.
- Construction firms with short credit histories may qualify.
Impact on Debt
Construction factoring differs from traditional financing in that it does not involve the addition of debt by the construction business. It provides instant financing from accounts receivable, making cash flow smooth and debt-free.
Construction factoring is a strategic alternative to bank loans, especially in scenarios involving long-term contracts or handling extended payment terms from large business customers. It gives quick cash, allowing the construction firm to have more control of its cash flow when there are unpaid invoices and ongoing project needs.
Talk to Us!
Interested in learning more about how receivable factoring can benefit your business? We’re here to help! Feel free to give us a call at 1-855-424-2955 or request a quote. A decision-maker will be more than happy to assist you!