Factoring is often the best way to manage money for a business with unpredictable or infrequent incoming cash flow dates. Like many invoice-based industries, construction faces the challenges of widespread payments that require massive commitments in terms of labor, material, and subcontractor services. It also has challenges that other invoice-based industries do not. That includes the milestone-based payment structure used as an industry standard on large-scale jobs, complicating cash flow and sometimes access to the construction equipment needed in the next phase of the project.
Finding a Factor for Construction Companies
Luckily, since construction factoring requires special knowledge of the industry, the financing companies that offer the service are easy to spot. Don’t settle for a generic factoring service. Instead, look into their website, blog, and other resources to see if they discuss the specific needs of the construction industry. Knowledgeable lenders who focus on niche industries demonstrate their familiarity with a mixture of advice, tailored service, and factual mastery of the industry’s economic ups and downs.
Industry Finances and Approval Times
Even after the submission of proof that a milestone has been achieved, many construction companies face the issue of long wait times. This is due to the fact that most projects require approval at multiple levels from entities in several institutions before those funds are released and the invoices paid. Factoring services become essential to obtain the construction equipment and other resources needed to continue, but the standard invoice-plus billing system does not apply to this particular industry. Wait times and fee structures must be adjusted to suit contractors like you for the service to be cost-effective in the way it should be.
Asset-Based Financing and Factoring
In any industry, a multi-asset approach to cash flow management is often a good idea. For construction firms and individual general contractors, it might be a necessity. Working with financing companies whose experience is concentrated on construction companies can often open doors by introducing you to other specialized products like equipment leasebacks, additional asset-based financing options, or even collateralized credit lines that can be backed with assets like construction equipment, not just real estate.
Check Out Your Options
While niche industry lenders make up a smaller percentage of the industry than general factors or asset-based lending firms, there are still several options out there. Look for the one with the most evident expertise and the longest track record of serving your industry to find your next factoring service.