Factoring Receivables for Construction Companies

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October 03, 2014

Waiting 30, 60, or even 90 days to receive payment from a customer can seriously hinder your construction business’ cash flow operations. If your business needs to receive payment quickly after a construction project has been completed, you should consider factoring receivables. This is a relatively simple process that allows you to sell your accounts receivables to a commercial financing company for immediate payment.

How it Works

Factoring receivables is a process that takes approximately five steps to complete. First, you perform a construction job for one of your clients. Then, you send the invoice you sent to your client to the factoring company. After you have competed this step, the third thing that occurs is that you receive a cash advance from the factoring company you chose to work with. Instead of you receiving payment from your client, it is then received by the factoring company. The fifth and final step occurs when the factoring company pays you the rest of the invoice’s amount, minus a fee.

What are the Advantages?

Factoring receivables may be an advantageous strategy for your construction company to use for several reasons. However, the primary benefit is that you are able to boost your business’ cash flow operations without needing to wait for payment from one of your clients. In many situations, you can receive a portion of your invoice from the factoring company you chose to work with within a matter of hours. This can help you solve your business’ cash flow issues, manage your expenses, and fund the growth of your operations.

In addition to this benefit, factoring your construction company’s receivables is also based on the credit of your company’s clients and not on your business’ net worth, will not show up on your company’s balance sheets as a debt, and can be customized to meet your business’ needs when you need capital. It is also important to keep in mind that factoring is not a bank loan and that your company is not acquiring any debt.

If you aren’t sure how much your construction company should factor, keep in mind that it comes down to the specific needs of your operations. For instance, you may not have a problem receiving payments from certain clients while others take a long time to pay. In this situation, you may want to consider only factoring the invoices from the clients that take an extended period of time to provide you with payment. Speak with a professional in the commercial finance industry if you want to know more about how factoring receivables can benefit your construction company.


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