The benefits of construction factoring for contractors and subcontractors are numerous and can change your method of doing business in many ways. A factor will buy accounts receivable from you and direct deposit a hefty portion of the money into your account, usually around 70-90%. They then take on all of the liability for receiving the payment and will pay you the remainder of what is owed to you, minus a factoring fee of about 2-6%, once the client has paid their bill. Getting cash upfront and letting someone else manage this unstable portion of your finances can greatly increase your peace of mind, not to mention your business success.
The most obvious benefit of factoring is that you will have better access to the money you have earned. Getting paid in days rather than months allows you to pay your suppliers and employees more regularly, which will help you keep the good ones around. Also, being able to accept new jobs sooner will help you become more well-known in your community.
Focus on Your Work
If you use a construction factoring service, they will be responsible for taking care of the whole financial process from that point forward. A team of people will be put in charge of maintaining your accounts and making sure that all of your clients pay their bills, so you will have more time and energy to work on completing your work projects.
Many factors today allow you to track your payments online. This will keep all of your outstanding invoices in one organized location and will keep you updated on the payment status of your clients. You can check it regularly and connect your account to your business bank account to receive direct deposits.
Unlike traditional bank loans that are based on your credit alone, construction factoring companies accept or deny contracts based on the credit of your clients. Because each client is approved individually for the amount they owe, the maximum amount of money that you are able to get is unlimited. You will get paid for every approved invoice regardless of how high the total is.
If you would rather spend your energy completing construction projects than issuing liens and collecting payments from elusive clients, then you will likely benefit greatly from developing a relationship with a factoring company. It is a secure way to make sure you maintain a steady enough cash flow to pay your suppliers and staff within a reasonable time frame, and it is far simpler than constantly applying for bank loans.