How Construction Factoring Helps Subcontractors



Work is never dull for a construction subcontractor. You spend all day making endless decisions, completing labor-intensive projects and trying to schedule future jobs so you and your team can rely on a relatively steady income. The really hard times hit when you realize it may be three months before you will get paid for the project you just finished. This problem is all too common in the construction industry and it has two common solutions: apply for a bank loan or find a construction factoring company.

Applying for a bank loan requires quite a bit of paperwork and time for approval. If you are new in the field or do not have stellar credit, you are unlikely to be approved for loans large enough to impact your business in a significant way. Also, you will be responsible for paying back the loan in the future, which can cause you unnecessary stress.

On the other hand, construction factoring is a great option for subcontractors because it allows you to receive payment for your work in around 24 hours after approval. A factor buys your open invoices and quickly pays you around 70-90% of the total. They are then responsible for receiving the payment in full from your client. As soon as the bill gets paid in full, the remainder of what is owed to you is deposited into your account, minus a factor fee of about 2-6%. Factoring services do not require long-term contracts and their terms are flexible.

The primary benefit of hiring a factoring company is that you will get your money upfront rather than waiting several weeks or months for the general contractor to get paid so you can get paid. Having a more steady cash flow allows you to pay your suppliers and employees more regularly, accept higher-paying jobs that require an initial investment from you and cover your bills during the slow months that are common in the construction industry. Also, you are more likely to receive your payment in full because factoring services that specialize in construction loans use proven methods to convince clients to pay you in a timely manner, such as obtaining lien releases and providing courtesy collection calls.

Subcontractors can benefit greatly from developing a good relationship with a construction factoring company. You can have more access to working capital, which you can use to cover a wide variety of your business expenses. Having more consistent access to your money will help you avoid constantly living with the stressful feast or famine mentality. You will quickly receive the money that you earned and can spend your time developing a successful company rather than worrying about staying up-to-date with collection tasks. Let the professionals handle it.