Developers use Construction Factoring in Economic Downturn

<h1>Developers use Construction Factoring in Economic Downturn</h1>Author: <a title="Kristin Gabriel" href="http://www.articlesbase.com/authors/kristin-gabriel/29809.htm">Kristin Gabriel</a> If you are a subcontractor waiting to be paid by a general contractor who is taking 30, 60 or even 90 days to pay your invoices, then construction factoring may be the answer to help you make payroll, pay suppliers, get materials, and even get rental equipment.Your construction business deserves better funding.From 1998 to 2007 in the Unites States, factoring numbers went from 70,059 to 81,860. Although the economic downturn has put a damper on development in many cities across the U.S., there are still projects with new buildings going up, and many old building renovations. There are schools and colleges being built, health care offices, hospitals to take care of the aging population. There are prisons, parks and recreational facilities and hotels. Many jobs are filled by contractors, subcontractors, and suppliers.developers used to have to rely on borrowing money from banks that typically insisted on securing assets for a loan. Borrowers, and in this case, developers have to meet monthly payment obligations to pay off the loans. The problem is that for many construction contractors, the loans become a challenge insofar as cash flow.Construction companies can use real estate collateral to obtain a loan through a finance company. Collateral such as real estate (commercial or residential) cash value on life insurance, or even stocks can be used to secure funding. Financial institutions often lend funds based on a company's accounts receivables minus its accounts payable. They advance money based on the value of the equity.However, because of a method called progress billings, prevalent in the construction industry, many finance companies are reluctant to lend only on receivables. There is another very promising alternative known as invoice factoring where a factor advances a contractor, subcontractor, or supplier cash on the basis of one (single invoice factoring) or more invoices. The factor buys the invoice, advancing up to 70 percent up front. With factoring, a subcontractor does not have to borrow money or make monthly payments. It is a great cash flow control mechanism, and typically leads top prosperity and growth.Here is why. A subcontractor working on a big commercial development project may needed some cash. If he uses a factor, he could get the cash equivalent to as much as 70 percent of a single invoice. When the invoice was paid within 30 days, the subcontractor would receive the balance of the money. But if for some reason the account failed to pay because of credit problems, the factoring finance company would take the loss on the $70,000.Factoring could help this subcontractor grow his business by allowing him to take advantage of work opportunities that he would have otherwise declined. Contractors need to take a look at the financing methods that can help their businesses grow and remain profitable today. Accounts receivable factoring is a sound method. About the Author: A writer, Kristin Gabriel works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial services such as <a href="http://www.ifgnetwork.com">invoice factoring </a>to clients in more than 30 industries. IFG offers expertise in accounting, finance, law, marketing and banking. Ho to <a href="http://www.ifgnetwork.com/"><a href="http://www.ifgnetwork.com" target="_blank">www.ifgnetwork.com</a></a> to learn more about factoring.Article Source: <a href="http://www.articlesbase.com/">ArticlesBase.com</a> - <a href="http://www.articlesbase.com/finance-articles/developers-use-construction-factoring-in-economic-downturn-926759.html" title="Developers use Construction Factoring in Economic Downturn">Developers use Construction Factoring in Economic Downturn</a>

If you are a subcontractor waiting to be paid by a general contractor who is taking 30, 60 or even 90 days to pay your invoices, then construction factoring may be the answer to help you make payroll, pay suppliers, get materials, and even get rental equipment.Your construction business deserves better funding.

From 1998 to 2007 in the Unites States, factoring numbers went from 70,059 to 81,860. Although the economic downturn has put a damper on development in many cities across the U.S., there are still projects with new buildings going up, and many old building renovations. There are schools and colleges being built, health care offices, hospitals to take care of the aging population. There are prisons, parks and recreational facilities and hotels. Many jobs are filled by contractors, subcontractors, and suppliers.

developers used to have to rely on borrowing money from banks that typically insisted on securing assets for a loan. Borrowers, and in this case, developers have to meet monthly payment obligations to pay off the loans. The problem is that for many construction contractors, the loans become a challenge insofar as cash flow.

Construction companies can use real estate collateral to obtain a loan through a finance company. Collateral such as real estate (commercial or residential) cash value on life insurance, or even stocks can be used to secure funding. Financial institutions often lend funds based on a company's accounts receivables minus its accounts payable. They advance money based on the value of the equity.

However, because of a method called progress billings, prevalent in the construction industry, many finance companies are reluctant to lend only on receivables. There is another very promising alternative known as invoice factoring where a factor advances a contractor, subcontractor, or supplier cash on the basis of one (single invoice factoring) or more invoices. The factor buys the invoice, advancing up to 70 percent up front. With factoring, a subcontractor does not have to borrow money or make monthly payments. It is a great cash flow control mechanism, and typically leads top prosperity and growth.

Here is why. A subcontractor working on a big commercial development project may needed some cash. If he uses a factor, he could get the cash equivalent to as much as 70 percent of a single invoice. When the invoice was paid within 30 days, the subcontractor would receive the balance of the money. But if for some reason the account failed to pay because of credit problems, the factoring finance company would take the loss on the $70,000.

Factoring could help this subcontractor grow his business by allowing him to take advantage of work opportunities that he would have otherwise declined. Contractors need to take a look at the financing methods that can help their businesses grow and remain profitable today. Accounts receivable factoring is a sound method.

A writer, Kristin Gabriel works with The Interface Financial Group (IFG), North America's largest alternative funding source for small business. The company provides short-term financial services such as invoice factoring to clients in more than 30 industries. IFG offers expertise in accounting, finance, law, marketing and banking. Ho to www.ifgnetwork.com to learn more about factoring.

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