Credit market tightening has taken its toll on the construction industry, so invoice factoring has become a highly effective cash management strategy, particularly in the construction industry and for sub-contractors who often experience cash flow problems: meeting payroll, buying supplies, paying benefits and Workers Compensation. Factoring allows businesses to obtain funds based on the funds they expect to have coming in.
Contractors have special needs because they often do not get paid for up to 90 days after the job is completed. By advancing up to 90 percent against invoices, construction factoring is often a contractor’s saving grace to stay in business. Factoring is an extremely quick way to turn a company’s receivables into cash rather than waiting up to 90 days for an invoice to be paid. Factoring companies like IFG will look at your customers’ credit rather than yours.
Most developers used to rely on borrowing money from banks that usually require securing assets for a loan. They have to meet monthly payments in order to pay off the loans, and for many construction contractors, cash flow is needed to be able to pay the loans. Invoice factoring can help ease the pain when other credit is unavailable.
Jan J. Cunningham
The Interface Financial Group
I never advance more than 80% for factoring construction industry clients. I advance even smaller percentages depending on the situation. Most factoring companies will not touch this type client.
I am seeing a lot of inguiries from construction contractors. I will only advance 80% when I factor their receivables. I am also performing extra due diligence as there are a number of projects in my market that are in trouble resulting in liens being placed as contractors are not being paid. You can never be too careful.
I’ve also seen more and more construction clients applying for financing but they seem to be too small at first contact and don;t have enough recourse. It’s a good idea to touch base with them again in a month or so and see if they’ve increased their AR enough.