Factoring can help construction companies avoid negative cash flow, providing a flexible and reliable source of capital. The customer pays the invoice amount to the factoring company at the terms you previously agreed upon. In most cases, you’ll receive a cash advance in less than 24 hours. The cost of factoring varies depending on the industry you operate in. Construction factoring is a worthwhile financing option for different construction businesses for several reasons. A factoring company buys your open invoices & advances you the cash, minus a small percentage. Best of all, new debt is avoided and no payments are required by you with a factoring facility. Benefits of Construction Invoice Factoring. No credit qualification is necessary as the creditworthiness of the business’ customers is relied upon. Future invoices can be sold to the factor as often as needed. When the funds are collected, the factor pays the business the reserve minus fees, which are typically 1-3% per month.
In order to protect against billing discrepancies, the factor allocates part of the invoice value to a reserve, as well as taking on the responsibility of collecting receivables within the regular terms of the invoice. Therefore an increasing number of construction companies are turning to invoice factoring, an option that has been around for hundreds of years as an effective method for financing business operations.įirst, a factoring company (or the “factor”) purchases the construction firm’s invoice at a minimal discount, then pays up to 80% of it to the business within 2-3 days. Banks also lack the flexibility that construction firms need for handling short-term variations in cash flow. It requires a lengthy application and approval process, incapable of addressing the immediate need for capital. Traditional financing through a bank or commercial lender is ruled out for most smaller construction firms, and it isn’t a viable option. Reliability and flexibility in accessing capital is key. That’s where invoice factoring for construction comes into play. Invoice factoring is a process in which a contractor sells an invoice or group of invoices to the factor, or factoring company. A reliable source of capital, or hefty cash reserve, is necessary for construction firms to bridge this gap. For many small construction firms, this growth will require further financial preparation and a smooth cash flow. It isn’t uncommon for construction firms to operate in a position of negative cash flow for a while, especially with the costs of paying subcontractors. The reality can often be much more challenging with structured staged payments, ‘Applications for Payment’ needing to be made and retention clauses holding anything up to 5% of a contract’s worth until the project has reached Practical Completion, sometimes months or years from when sub-contract works were completed.The construction industry trend is now uphill once again. In order to protect against billing discrepancies, the factor allocates part of the invoice value to a reserve, as well as taking on the responsibility of collecting. The aim of the JCT contract is to improve the quality and standards within the construction industry, providing a standard working practice for all involved in the process. First, a factoring company (or the factor) purchases the construction firm’s invoice at a minimal discount, then pays up to 80 of it to the business within 2-3 days.
This allows you to continue to work on projects and make plans for the future.Īs a contractor or sub-contractor, working within the parameters of a JCT contract and the complexities they bring can be difficult. If you suffer from long payment terms, delays because of applications for payment or contractual issues that delay your revenue, then construction factoring could be right for you.Ĭonstruction factoring can help to speed up this chain, enabling your construction firm, regardless of size, to maintain a fluid credit facility. “Construction Factoring is a fast and efficient way of funding your business and we fund industries where other funders can’t” Is your debt contractual – We Can Fund You.Construction Factoring is a quick and easy way to ensure your business has working capital to complete projects.
0 kommentar(er)
