Construction Factoring For The Subcontractor
The biggest financial challenge that faces the subcontractor is meeting payroll requirements. Meeting these financial demands is hard to do when the on average, the construction industry pays invoices 30-60 days after an invoice has been submitted. For a subcontractor that has limited financial resources this can prove to be a very difficult task. Waiting for 60 days to have an invoice paid is not always a feasible solution to a sub contractor that is not independently wealthy. Materials need to be purchased to continue working on existing projects as well as maintaining payroll requirements.
Traditional lending institutions don’t offer much reprieve in face of financial difficulties for those subcontractors. Construction factoring fills the gap that was conventionally created by the larger financial institutions saying no to the construction industry subcontractors. Banks and the construction industry are not typically thought of as having a good working relationship and tend to steer clear of one another. Banks require the subcontractor to produce several years’ worth of turning profits and it is a long, drawn out process.
Construction factoring offers the ability to give the subcontractor finances that are owed to him by buying out the invoices. Payment can be released immediately upon approval and the entire process can take place completely within a few days. Once the invoices are assessed by the construction factoring company and the risk assessment has been made, the cash is immediately accessible. That is a great relief for many subcontractors who face having to deal with a bank and waiting for weeks to get a loan set up. Construction factoring gives those subcontractors the working capital they need to pay the employees and suppliers on time allowing for the construction business to grow. This is a powerful financial tool for bridging the gap between waiting for an invoice to be paid and requiring the cash today.
Construction factoring is very easy to follow and simple to understand. The construction factoring company will assess the invoice or invoices that are waiting to be paid. The factoring company will allow the subcontractor approximately 75% of the total invoice or invoices. Once this process is secured, the finances will be available immediately for use. The other 25% of the gross total invoice(s) are put into a reserve account until the customer has pays the invoice. Once the construction factoring company receives payment for the invoice, they return the 25% minus the factoring fee associated with the service. Construction factoring offers a fabulous financial tool to enhance any growing construction subcontracting company. The requirement to qualify for this type of financial help is basically to have a client base that is creditworthy and pays invoices on time. These are all signs of a well-run business and will affect the outcome of construction factoring approval.
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