New Business Trends: Learn About Construction Factoring

Are you nervous about paying employees and paying suppliers on time? Are you waiting from 30 to 90 days after completing a job in order to get paid by the general contractor or your client? If you are a subcontractor working on a project, then you could qualify for something called construction factoring.

These are some of the biggest challenges for construction subcontractors, especially in today's economic climate. It may be even more of a challenge if your business is new and does not yet have much operating cash. Few people can afford to wait 90 days to be paid, and even fewer can qualify for a loan due to the tightening of the credit markets.

However, suppliers and small to mid-sized subcontractors can get their invoices paid in as little as two days, using a tool called construction factoring.This means you will have predictable cash flow.Compared to bank financing, construction factoring is easy to set up and obtain.Furthermore, few of them can really qualify for a business loan. However, factoring provides with an alternative business financing option to help contractors meet their business obligations and grow. Invoice factoring accelerates slow paying invoices by financing them through a factoring company.

Here's how it works:

- A contractor or supplier delivers the product or service, and then sends an invoice.
- invoices are then sold to the construction factoring company, who advances the funds to you.
- It's important to do business with reputable general contractors or construction companies.
- Once the general contractor or client pays the invoices, the transaction is complete. There will be a competitively priced factoring fee associated with the service.
- Choose one of many factoring companies that is set up do handle construction factoring.
- You can begin factoring invoices very fast.

Construction factoring can bring in funds for invoices quickly and effectively, providing the necessary cash to meet your current obligations, and to also take on bigger jobs.

How does construction factoring work?

Using contractor factoring is a very simple, standard process such as:

- You deliver your products or services to your customer.
- You send the invoice to your client and a copy to your factoring company.
- Invoice verification with the general contractor takes place.
- The factoring company advances you up to 85 percent. Construction factoring is different from bank financing because it is easy to obtain and can be set up very quickly.

Benefits to factoring construction invoices include:
1. You won't have to wait to get paid for your work.
2. Factoring is easy to obtain and can be set up very quickly.
3. You get an advance quickly after invoicing.
4. Construction factoring grows with your projects.
5. It provides predictable cash flow. Construction factoring is simple to use and can easily be integrated to your business.

Once you complete the job, you just send an invoice to your client and a copy to the factoring company. The invoice is verified with the general contractor client, and last, you get the first invoice advance. Once your client pays, you receive the remaining funds, less a fee.

Invoice factoring can apply to subcontractors in fields including: architects, asphalt, carpenters, ceiling, concrete, electrical, drywall, excavators, HVAC / mechanical contractors, paving, plumbing and roofing.