When you managed the project, coordinated subcontractors and delivered quality work on schedule, then it shouldn’t be your full-time job to chase payments.
Those 60-day or 90-day payment terms can seem like an eternity when your workers need salaries, and you need to buy materials for the next job. This cashflow crisis is the biggest headache for builders, subcontractors and contractors across the UK.
But what if you could get out of that rut? What if there was a way to turn that outstanding invoice into instant working capital? This all can happen with construction factoring.
In this blog, we will cover exactly how construction invoice factoring works, why it’s a better option for builders, and how to find the right invoice factoring provider that will help your construction business.
What Is Construction Finance?
In simple words, construction finance is a financial product specifically tailored for the building industry. Construction finance differs significantly from typical retail or service businesses, which involve single transactions and fixed price points.
Unlike your standard product or service sales, construction has staggered payments throughout the project with high costs up front and varying timelines depending on factors beyond your human control.
Financial solutions, like bank loans, are often too slow and inflexible. Construction finance is designed for flexibility. These options can include loans, such as asset-based lending, merchant cash advances, and, most notably, invoice factoring for construction.
All these financial solutions are funded by the assets and sales you already possess, making them a more accessible source of cash inflow that can enhance your business’s health.
Compare Invoice Financing Quotes Today
Invoice Factoring: Why Your Construction Business Needs To Take It Seriously
What makes construction factoring such a perfect fit for our industry? It all depends upon the nature of your business. You don’t get paid a stable monthly retainer; you earn it in chunks as you hit major milestones. This results in a roller coaster of cash flow: feast one month, famine the next.
Construction factoring helps stabilise the fluctuating cash flow. It is a reliable stream of cash flow, by literally unlocking money you have already earned but have not yet been paid. It’s not a loan; it’s an advance on your sales.
All of this makes it a great tool to use to cover your payroll of experienced labourers, buy crucial materials in bulk at a discounted price, or even lay down deposits on new equipment so you can start growing your business.
Advantages Of Invoice Factoring For Construction Companies
Here are some of the common advantages of invoice factoring for construction companies:
Improve Cash Flow Instantly
Quit staring at your ledger and seeing cash you cannot spend. Construction invoice factoring lets you get 90% of your invoice’s value in 24 hours. This changes your receivables from a promise into an available asset you put to work today to support your business.
Improves Project Management
Because they will always have cash, project managers can concentrate on what they do best: providing high-quality work on time and within budget. They can resource your project efficiently, ensuring no delays and full funding for all work aspects at the outset.
No Debt Accumulation
This is a crucial point. Invoice factoring is not a loan; therefore, it doesn’t involve debt. It involves purchasing an asset, specifically your receivable invoices. This means that it will not appear as a liability on your balance sheet. You aren’t leveraging up, safeguarding your company’s financial health and borrowing power in the future.
Enhanced Credits Management
It’s time-consuming to have to chase money, and it frays client relationships. Most factoring companies typically manage the collections process for you. The factoring companies handle the collections process professionally, so you don’t have to act as a debt collector. This procedure will release your administration and ensure you still have good relationships with your customers.
Avoid The Extended Bank Loan Process
Forget about lengthy forms, business plans, and the months of waiting that can follow a bank committee’s decision. The factoring construction application is easy and fast. It’s because qualifications are centred on the creditworthiness of your own clients, not the fact that you’re a startup company or have been in business for years.
Invoice Factoring Vs Other Construction Finance Options
Before making a decision, it is important to weigh all the options. Here’s a clear comparison between invoice factoring and other construction finance options:
| Feature | Invoice Factoring | Traditional Bank Loan | Business Line Of Credit (Confidential) Factoring |
|---|---|---|---|
|
Basis For Funding |
Your client’s creditworthiness |
Your company’s credit and assets |
Your company’s credit history |
|
Funding Speed |
24 to 48 hours |
Can take up to several months |
Several weeks |
|
Debt Created |
No |
Yes |
Yes |
|
Best For |
Addressing the issue created by slow payers |
Long-term, large capital investments |
Managing unpredictable, smaller expenses |
|
Collateral Required |
Only paid invoices |
Business and personal assets |
It varies and is often required |
What To Look For In A Construction Invoice Factoring Company
Not all factoring companies offer the same services. When selecting a construction business partner, consider these aspects:
- Construction Industry Experience: Select a company that knows how construction billing works.
- Clearly Stated Fee Plan: Stay away from companies that hide their charges in vague contracts. You want to know every cost up front.
- High Advance Rate: You want a company that gives you an advance of the largest percentage of your invoice.
- Professional Courtesy: Ensure that the company is genuinely professional and has a collections staff capable of protecting the client relationships you have worked hard to build.
Find The Ideal Invoice Factoring Provider For Your Construction Business With ComparedBusiness UK Today!
You don’t need to find your way through the sea of invoice factoring providers on your own. Here at ComparedBusiness UK, we help you find the best providers of invoice factoring for your construction company.
We know each business is different, which is why we work with various vetted providers that provide competitive pricing, clear terms, and exceptional service.
Don’t let unpaid invoices hold you back anymore; get in touch with us to find the best invoice factoring provider.
FAQs
In some factoring solutions, such as disclosed factoring, your client will know that a factor is involved. On the other hand, if you choose confidential factoring, all your financial arrangements will be kept confidential.
The process is remarkably quick. After your application is approved and you send in a verified invoice, the advance should be available in your bank account within 24 to 48 hours.
It is completely up to your service provider. There are places that oblige you to be in a contract for 6 to 12 months, and others have a monthly payment system. Therefore, it is an important question to ask when finding your invoice factoring provider. At ComparedBusiness UK, we can help you find the one that fits all your needs.
