Everything You Need to Know About Construction Factoring
Individuals seem to have revived the construction industry, especially after the downturn experienced during the Covid pandemic. The number of people ready to build new structures has increased as the economy continues to improve. This article includes everything you need to know about construction factoring.
What is Construction Factoring
Construction factoring is a source of financing. It involves obtaining cash from subcontractors in advance for their invoices. For example, if you require funds to ensure your firm remains functional, factoring might prove helpful.
Advantages of Construction Factoring
Faster Approval for Financing
The approval period of factor applications is less than a week. Your application is approved regardless of bad credit or a recent bankruptcy; you only require good payment records and have clients with good credit.
The fees charged by the factor and the discounted rate of selling your invoices are the only costs you have to pay when factoring. Compared to bank loans, these costs are low most of the time.
More Money Upfront
Selling multiple invoices at once will see you receive more money than in banks. Banks use your credit score to limit the funds you receive, along with your progressive business income and other aspects.
Considerations for Construction Factoring
Understanding how unique factoring is in the construction venture is crucial, despite it having remarkable advantages. It would help if you find an experienced factor to guide you through the complexity of this industry, including how clients pay their invoices.
A qualified factor must consider contractual restrictions, leading to dispute and chargebacks if not managed correctly. Examples of these restrictions include “paid when paid” and “paid if paid.”
An experienced factoring agent will advise you on which construction factoring strategy works best between recourse and non-recourse factoring. This decision depends on your invoice clients’ stability, and the project types your company deals in.
As the construction industry evolves, it would be wise to include construction factoring in your strategy to increase your yield. Knowing its benefits and how it impacts your project funding is a step in the right direction. Contact Advanced Commercial Capital LLC to learn more about factoring.