A Guide to Cell Phone Signal Boosters

Poor cell phone reception continues to be a major problem…

Debt Busters: The Complete Guide to Getting out of Debt

When it comes to getting out from under the mountain…

Construction Factoring: Everything You Need to Know

Construction Factoring: Everything You Need to Know

If you are in the construction industry you may hear the term “construction factoring” mentioned; understanding what it refers to is a simple process and even a construction professional who is less than accounting-savvy can understand how construction factoring might just benefit his construction firm.

How The Construction Company Can Benefit

Before a construction company can start to work on the next phase of a project, or move onto an entirely new project, they often require the infusion of positive cash flow that is provided by their clients paying their open invoices. However, as everyone is well familiar, it is the rare business and client that pays its bills on time every time.

This failure to receive the positive cash flow that they require can keep the construction contractors from being able to move forward – and in the world of construction, a stagnant jobsite is not a good thing at all – it leaves construction workers without a job to do and it leaves the impression that the construction company is not able to complete projects in a timely manner.

Invoice factoring allows the construction company to receive an almost overnight payment that can allow them to move onto the next stage of construction – which not only ensures that there are no slowdowns in the progress of the construction and the contractors ability to hit targeted deadlines but it also helps to keep construction workers gainfully employed.

How The Process Works

Very similar to the debt factoring process employed by many businesses, construction factoring allows a sub-contractor or construction firm to sell their open invoices at a discounted amount to a company that is also known as the factor. The factor then assumes all responsibility for collecting the money that is owed on the open invoices – not only will they take on the responsibility but they will be able to focus and invest their time on doing nothing but collecting on the invoices. Those in the construction industry often don’t have the time to dedicate to spending hours chasing down payments on open invoices so if they can hand that responsibility over to another party; it allows them to focus fully on the projects on hand. Construction professionals should keep in mind that the construction factoring firms are a lot more aggressive with their collection tactics so it might affect their own relationships with their clients.

The profit that the factor makes on the transaction is the difference between the value of the invoices and the amount that they have purchased it for; in situations where there are significantly high open receivables, factoring can prove to be a very lucrative deal for the construction factoring company.

Sub-contractors and construction companies should keep in mind that factoring their account receivables may not always be the best option for them. Consider a consultation with a finance professional at your financial institution to find out if a short-term loan is the better option for your company. If your company is able to land a low or no-interest short-term business loan, you may find that it is a much more profitable venture than to sell your receivables at a significant discount.

Due to the recent downturn in the construction industry, as a result of the overall economic downturn, construction firms may find it difficult to find a good short-term business loan however. Fewer banks are going to be willing to take the risk on a construction company unless they can prove, beyond the shadow of a doubt, that they have the ability to repay the loan within a reasonable amount of time. Construction factoring firms make it incredibly easy for those in the construction industry to get the positive cash flow that they need to help keep projects running smoothly – in this uncertain economic climate it can prove highly beneficial for a construction company to demonstrate to its clientele that it has the funding and the ability to forge on with projects – regardless of how timely the clientele are in paying their invoices.

At the end of the day construction companies, and sub-contractors, need to do what is in the best interest of their business and the projects that they are working on. Just do the appropriate research and make an informed decision based upon the research and the needs of the business.

Photo courtesy of Concrete Forms.

Follow Zenedy