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 unpaid invoices into quick cash. This accessible funding service can make managing your finances and paying your employees on time easier.
Construction company factoring ensures a steady cash flow and smooth operations, even if invoice payments are delayed. By speeding up cash flow, your company can effectively handle expenses, buy materials, pay subcontractors, and pursue new projects.
How Construction Factoring Works
Setting up a construction factoring account takes just a few business days. With an approved account, you can sell invoices from creditworthy clients and get the cash flow you need to fund operations. The factoring process works as follows:
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 complete, or progress payments are agreed upon.
- They are payable by a business.
- The due date for the invoice is within the factoring company’s accepted time frame.
After ensuring all invoices are complete, you submit them to the factoring company along with any required supporting documentation, such as lien release waivers, change orders, timesheets, progress billing reports, or other contractual documentation verifying the work’s completion or progress.
Step Two: Receiving Advances on Invoices
Following the submission and verification of unpaid invoices, your construction company typically receives an advance on the factored invoices within 24 hours of submission. The advance rate can vary significantly between different factoring companies and agreements but generally falls between 75% and 85% of the total invoice amount. The remaining balance is held in reserve until the factoring company collects the full payment from the commercial client.
Step Three: Collecting Payment and Releasing Reserves
In your customer’s ordinary course of business, once the invoice payment is released, it is sent to a P.O. box managed by the factoring company. Following the receipt of payment, the factoring company deducts a fee from the cash reserve balance and sends you the remainder.
Why Choosing Gateway Commercial Finance as 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 an overview of various construction businesses that frequently benefit from construction factoring services.
Construction Subcontractors
Subcontractors are ideal candidates for factoring companies. Waiting for payments from general contractors or owners can cause trouble maintaining regular cash flow. Construction factoring provides cash advances on outstanding invoices, helping subcontractors with cash flow while they wait for payment.
Specialty Contractors
Specialty contractors, such as those inside the preparation, utilities (above/below ground), concrete, framing and drywall, plumbers, electricians, low voltage and security, HVAC, painting, roofing, hardscape, landscape telecommunications, locating, infrastructure, and paving, often face payment delays that hinder their growth. Construction factoring can help convert unpaid invoices into immediate working capital, allowing them to take on new projects and expand their businesses without cash flow constraints.
Benefits of Construction Invoice Factoring
Invoice factoring is vital for construction contractors because it helps them maintain consistent cash flow by converting outstanding invoices into immediate working capital. This funding service is crucial for managing the cyclical nature of the construction business, staying competitive, and avoiding the drawbacks of late payments and lengthy waits associated with traditional bank loans.
The main benefits of this accessible funding service are:
1- Improved Cash Flow Management
Construction invoice factoring offers an immediate improvement in a company’s cash flow by allowing businesses to sell their accounts receivable and receive a cash advance within 24-48 hours. This fast advance service helps stabilize financials and ensures funds are available for urgent and upcoming expenses without waiting for client payments.
2- Prompt Payroll Fulfillment
Construction projects require a sizable workforce and timely payroll. With construction invoice factoring, businesses can receive a significant portion of the invoice amount upfront to meet payroll obligations without disruption, ensuring workforce stability and project progression.
3- Opportunity for New Projects
Factoring services provide construction companies quick access to capital locked in unpaid invoices. The funds advanced allow them to take on new projects and improve their competitive position within the industry, leading to business growth and increased revenue streams.
4- Reduced Administrative Burden
Dealing with accounts receivable in construction can take time and effort. Construction factoring companies can help by monitoring outstanding invoices and lightening the administrative load for businesses. This complimentary service allows companies to focus on essential tasks like project management and customer service, leading to smoother operations and potentially reduced overhead costs.
Differences Between Construction Factoring and Traditional Financing
Construction factoring is unlike traditional financing. While conventional financing depends on the borrower’s creditworthiness, construction factoring involves selling invoices to receive immediate cash.
Invoice factoring allows construction contractors to maintain cash flow without the stringent credit requirements of other financial solutions, making it a viable option for companies at different stages of growth.
Speed of Access to Funds
Factoring enables construction businesses to obtain funds faster than traditional financing. Once a relationship with a factoring company is established, cash can often be advanced within 24 to 48 hours after submitting unpaid invoices for factoring. In comparison, traditional bank loans can involve lengthy application processes, underwriting, and approval periods that may take weeks or even months.
Credit Requirements
Traditional bank loans scrutinize the credit history of the construction company. In contrast, credit requirements for construction invoice factoring are primarily based on the creditworthiness of the commercial clients rather than the construction company itself, allowing construction businesses, even those with less-than-perfect credit, to leverage the credit strength of their customers.
- Factoring companies assess the financial stability and payment history of the construction company’s clients.
- The construction company’s credit may be considered but is often not the deciding factor.
- No minimum credit score is usually required.
- Construction firms with short credit histories may still qualify.
Impact on Debt
Unlike traditional financing, construction factoring doesn’t create debt for the construction business. It provides immediate funding based on accounts receivable, ensuring smooth cash flow without increasing debt.
Construction factoring can be a strategic alternative to bank loans, especially for a long-term contract or handling a large commercial client’s extended payment terms. It offers immediate liquidity, allowing the construction business to manage its cash flow more efficiently in the face of unpaid invoices and ongoing project demands.
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!