Construction factoring is invoice factoring that is designed to meet the needs of contractors invoicing typically in progress stages. It is a form of financing that is based on the value of a company's receivables, and it provides construction businesses with working capital to cover short-term expenses. Supplier liens are common in the construction industry to ensure payment or collection priority to suppliers.
Invoice factoring is affordable and simple for qualifying businesses that need money to cover payroll or other expenses that could hurt the business if they are not paid on time. Some lenders that offer invoice factoring are hesitant to work with construction businesses. However, Contract Credit, Inc offers special invoice factoring arrangements specifically for construction companies with a variety of needs.
In the construction industry, it is also common for clients to pay invoices months after a service is fulfilled. With Contract Credit, Inc factoring, companies can get needed cash before invoice due dates.
Although construction factoring may sound complicated, it is actually simpler than it sounds. The main points to understand are qualification criteria, payment terms, advance rates and discount rates.
Qualification
Guidelines may vary from one construction factoring company to another. However, it is usually easier to qualify for factoring than it is to qualify for a standard bank loan. Business history minimums may exist. For example, a lending company may require a business history of at least a year. While not all lenders state a specific annual revenue requirement, Contract Credit requires at least $50,000 a month in sales volume for approvals.
Some lenders may have other stipulations to factoring contracts, such as first lien position. Businesses with outstanding liens, tax issues and performance bonds may find more limited options. Some lenders are willing to work with these issues if borrowers agree to the other terms. Also, certain lenders may not work with businesses that have clawback, progress billing or pay-when-paid arrangements.
Pay-When-Paid arrangements are more difficult to approve since the GC is stating that the payments will only be made after they collect.
Payment Terms and Discount Rates
As a rule, repayment is satisfied when the factored invoices are paid. Complications only arise when invoiced clients do not pay. Lenders often use discount rates to combine fees and interest payments. To provide an example, a lender may offer a 3% discount rate for the first month on the factored amount. The rate may be calculated daily after that point.
Contract Credit, Inc offers a discount rate for construction related receivables 3% for the first 30 days and .7 every 10 days thereafter.
Advance Rates
An advance rate is the percentage of the total invoice value that a factor is willing to offer to a business. For example, if a contractor has a $10,000 invoice, a factor may offer a construction business an advance rate of 80% upfront and the remaining balance will be sent minus a fee after the factor gets paid. Although advance rates may be higher in some industries, the construction industry has more risks and tends to have lower advance rates.
.jpeg)
.jpeg)
