Factoring Articles

Debt Factoring for Construction Subcontractors

Have you ever tried to get business financing for a construction subcontracting business? It is more than challenging and experts are saying that it will probably remain this way in the future, some predicting that it will take years for the construction industry to regain stability given the economy. Until then, most financial institutions will be reluctant to provide business loans to subcontractors. In the UK alone, the number of lenders that are willing to even consider financing a contractor is at an all-time low.

This situation may looks dire yet there are still many construction subcontractors that are doing very well indeed, and they span the industry from demolition experts, to carpenters, to HVAC companies to general construction. Even though these companies are doing well they cannot get the business financing they need, mainly because they are in an industry that is currently considered risky by lenders.

Many subcontractors are seeking business financing because they currently have cash flow problems originating from 30/60 and 09 day invoicing. Basically they complete the work, send an invoice or what is also known as an application and then they wait to get paid. Few have the capital to wait much longer, as they need the money to pay bills, staff and purchase suppliers and office expenses.

There is a great alternative that solves this problem, known as construction factoring. This provides an advance on any slow paying invoices, providing the cash flow a company needs to meet expenses while waiting for their invoices to get paid. The transaction is easy. A factoring company advances you a portion of your invoice - about 75 percent as a first payment. Once your client actually pays the invoice, or the application the transaction is settled and you get the reminder second payment of 25 percent, and of course, minus the factoring fee.

There is an advantage of construction factoring over a traditional loan –called flexibility. Factoring is not fixed but rather it is based on your invoices or applications, growing with your sales. Furthermore, most factoring companies look at the credit of your customer as one of their more important funding criteria. This makes it an ideal solution for small and medium sized companies, whose biggest assets are solid clients. Basically factoring is an effective solution for companies faced with having to wait 30/60 or 90 days.

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