Countless financial issues occur regularly in the construction industry that can threaten anyone’s business.
Late or unpaid invoices can stop a construction company in its tracks and leave them in serious cash flow straits.
If you need working capital, construction invoice factoring may be the help you need to get or stay on your financial feet.
In this article, learn everything you need to know about invoice factoring and how it can help you have the funds you need when you need them.
We understand the financial challenges that come with the construction industry.
That’s why we’re here.
Flexbase provides resources that help you get through the challenging times, so you can make your construction business what you want it to be.
But when you don’t get paid or find yourself in financial difficulty, we’ve got you covered with the following Flexbase services:
With Flexbase, you can stay cash flow positive despite the financial obstacles that may be in your way.
Construction company factoring is a type of cash advance on payments you are waiting to receive. Construction factoring is not a loan but may require approval or a credit check.
Construction factoring provides you with the cash you need so that your work doesn’t have to halt. It frees you up to move on to the next phase of the project or to start a new job.
To factor an invoice, a construction company or subcontractor will “sell” or assign an outstanding invoice to a factoring company. In return, the factoring company will advance funds to the construction company quickly, usually within 1 to 3 days.
When invoice factoring for the construction industry, consider the following timeline:
Before - Research
After signing - Communication with the client
After invoice payment - Final accounting
Let’s say you’ve completed your portion of the work on a project, and you send an invoice to your client for $10,000. After 60 days, you have not received payment, so you decide to factor the invoice to have the working capital you need.
Here’s an example of how the process would work:
Any company or subcontractor with cash flow issues may be interested in construction invoice factoring.
Companies that may not qualify for other types of loans or companies that need funds fast may also find that construction invoice factoring is the best solution.
Construction companies incur a myriad of expenses:
When the funds aren’t available to meet these regular expenses, the construction company may need to turn to construction invoice factoring to fulfill their financial responsibilities.
Companies using the right invoicing system like the one provided by Flexbase should be able to regularly take care of their day-to-day expenses. But whether they are using a quality invoicing system or not, other unexpected issues may arise, leaving them needing immediate cash.
Below are seven common reasons a construction company may employ the services of a construction factoring service.
Cash flow can be unpredictable in construction because payment isn’t always received immediately after work is done. Sometimes it won’t be received until months later.
That can make it tough to take care of recurring expenses like payroll, rent, utilities, etc. that won’t wait until you receive payment for work done.
Factoring invoices may provide you with cash up front to take care of those expenses until you are paid for your services.
Growing their construction business is likely a goal for most construction company owners. But with unsteady cash flow, it can be difficult to bid on larger jobs or take on a larger quantity of jobs. And without those additional jobs, growth is halted.
It can turn into a never-ending cycle.
Invoice factoring can help a company or subcontractor escape the cycle. With available funds at hand, taking on more or larger jobs is a possibility that will allow them to expand their business and be more competitive.
The threat of a lawsuit is real in the construction industry, and every contractor knows that.
Even when all safety precautions are adhered to and you strive to work with honesty and integrity, there’s always the chance of someone getting injured or suing you for some other reason.
Having the option of invoice factoring can free up funds in the case of a lawsuit against you.
Losses can come in a variety of ways for construction companies:
No matter what type of loss a company may be facing, invoice factoring can give them the cash they need to meet those losses head-on.
Sometimes the economy can be just as erratic as construction cash flow.
When the economy is booming, we all rejoice and enjoy the ride. But when the economy takes a dive, it threatens to take the construction down with it.
With extra cash on hand, staying afloat during an economic downturn is more possible.
Companies or contractors may need to resort to construction industry factoring when even the most trustworthy clients don’t pay on time. Whatever the reason for their delay, working with a factoring company can help you get the funds you need while waiting for full payment.
Additionally, clients with unrealistic expectations can cause projects to drag on and cost more than you planned. Extra cash on hand allows you to handle the delays and additional costs with a more fluid cash flow.
Whether you need to buy heavy equipment …
… you’ll need cash.
Having a reserve of cash for these unexpected expenses is, of course, preferred. But when that cash reserve isn’t available, invoice factoring may be the way to go to buy needed equipment or replace what’s been broken.
If you’re experiencing any of these cash flow dilemmas, Flexbase can help your company obtain the cash you need to keep working or to grow your business.
With Flexbase capital and cards, financing is fast and easy because we already have the information in our system to do the data analysis necessary. There’s no need to fill out applications or deal with credit checks.
Two types of construction factoring may be offered by a factoring company:
Construction factoring provides the following benefits:
Factoring construction invoices also comes with a downside.
Some disadvantages to be aware of include:
|Bank Loan||Construction Factoring|
|- Loans depend on the company's credit history.
- A bank is less likely to provide a loan to a company with a negative credit history.
|- The credit history of the construction company isn’t as important since they are working directly with the customer.
- More weight is placed on the customer’s payment history.
|Requires lots of paperwork and red tape||Less red tape required|
|Collateral is necessary to secure a bank loan.||No collateral or assets are necessary. The invoice is the only asset in question.|
Both debt collections and factoring companies deal with invoices on work you’ve already completed. They also are more concerned with your customer’s credit history than your own.
Despite these similarities, debt collection and factoring companies are very different.
Is negative cash flow dragging you down or threatening the growth or stability of your business?
You don’t need to resort to desperate measures like bank loans or mechanics liens when you take advantage of Flexbase’s invoicing options.
Use our automated invoicing system to streamline the whole process. When customers are late with payments, we’ll send them a friendly reminder, which is oftentimes the only action necessary to recoup payment.
But when those payment reminders don’t do the trick, you can secure working capital with:
There’s no need to complete an application or a credit check. We can quickly perform a data analysis based on the quality of both your company and your clients.
We provide in-house construction factoring that frees you up to focus on your company. We will buy your outstanding invoices at a discount and run point on collecting the payment for you.
And the best part is that our services are available to use free of charge. We don’t get paid until you get paid.
Schedule your free demo today.