You’re ready to start your next construction project. Then you realize the money you need is tied up in accounts receivable. Construction invoice factoring gives you the working capital needed for materials and labor. Your construction receivables are an asset that can be leveraged.

Owners of construction companies are frequently hampered by the lack of working capital, particularly when they’re involved in multiple projects. The dilemma is magnified when their funds are tied up in construction receivables. In many cases, materials must be purchased without the benefit of credit and employees must be paid weekly. This can cause a major cash crunch, but construction invoice factoring is an excellent money management solution to the problem.

With factoring, cash is advanced to the client upon submission of an invoice. The services being billed must be approved and acceptable to the client’s customer. With construction factoring, there must be a “milestone” for each billing. In other words, a certain part of the contract must be performed and an actual invoice generated, as opposed to a percentage of the entire contract completed.

The advance for construction factoring is typically between 65% and 75%, depending upon the situation, with the remainder remitted to the construction company upon collection of the invoice, less the factoring fee. The advance can be advantageous in a variety of ways, including the ability to obtain materials purchase discounts and to be able to negotiate optimal pricing. The influx of working capital from factoring construction receivables fuels the company’s growth.

Factoring provides cash flow to:

Cover payroll and other expenses

Take on new jobs

Take advantage of volume discounts on material purchases

Increase your company’s growth

One frequent question is,” Can invoice factoring be utilized if the service provided spans a long time frame?” The answer is yes, but the way the company bills the client is critical. When you initially set up the agreement with the customer, you should specify the exact work to be performed as it relates to billing. In other words, both parties should agree that an invoice can be generated upon a certain level of performance or milestone. The factoring company will be able to advance funds based upon that invoice even though the entire job isn’t completed.

Contrast this scenario to progress billings, an arrangement in which the customer advances money for the job as a whole. The Factor (lender) is hesitant to advance funds to the client with progress billings, since the company getting billed may become unhappy along the way and stop making payments. With milestones, on the other hand, that is not a problem.

Smart money management strategies I use with my clients include looking at factoring as an alternative for funding projects. Construction companies that need working capital owe it to themselves to investigate factoring as an option.

Factoring is just one of the many money management strategies that I use to help my clients. Here is a recent testimonial from one of my construction company clients:

“Two years ago my construction company was close to bankruptcy with only $30 in our bank account and no way to pay bills.

Using the Money Management Solutions program we are doing so well now. With the power of this system and the financial stability it has helped us create, we now have $130,000 in reserves and always have $250,000 or more in our bank operating account.” K. A.

For information on a reputable and ethical factoring resource for your construction receivables or information about the Money Management Solutions program, ask Sandra by sending an email to Sandra@MoneyMgmtSolutions.com