Construction Factoring is for contractors that require working capital while working on a project. Contractors will typically submit a standard A1A application for payment to the owner or general contractor requesting payment for work completed less retainage on a monthly basis. Once approved, the contractor will receive payment 30 - 60 days later provided that there are no disputes.
Contractors will use construction factoring to bridge the time between completing the work and receiving payment from the customer. Contractors utilize the capital to pay labor costs, pay for materials and to start work on other jobs. Contractors need consistent cash flow to keep multiple jobs going and ensure that their suppliers are all paid.
Construction factoring is more expensive than traditional factoring and comes in two main variants. Some construction factoring companies manage the contractor's payables as part of the equation. The factoring company pays suppliers directly for materials and labor to ensure the job stays free of mechanics liens. Other factoring companies rely on the customer to make payments to its vendors but make stronger verifications with the customers and may require back-up documentation to accounts payable schedules. Most factors require the client's customer to sign some sort of acknowledgment form confirming that the work has been completed and that the customer intends to pay.
The most important part of contractor financing is understanding the role the customer will play in the relationship. If the construction factoring company is going to require the owner or general contractor to sign additional paperwork from the factoring company to verify the invoices, the customer should be made aware of this upfront. Working with a construction factoring company that understands the industry and can complete the necessary paperwork with the customer is often more important than the rate that is charged.
Construction factoring can be expensive and difficult to get the customers to cooperate with, however, can help construction companies work several jobs at one time as contractor financing provides accelerated working capital.
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Customized Financing Options
Asset Based Lending
Revolving lines of credit up to $20,000,000
Accounts Receivable Factoring
No minimums, up to $20,000,000
Secondary lines of credit for ABL or Factoring
Equipment & inventory facilities
Great for staffing & temp agencies