Construction Receivables

One of the most common challenges a business in the construction field faces is maintaining cash flow. Most construction companies are subject to progress payments, meaning they generally do not begin to receive payments until 30, 60 or even 90 days into the project.

The company may have one or many invoices, progress billings, requisitions, or AIA's on hand, but no cash to pay employees, material suppliers, equipment houses, governmental obligations, etc.

The answer to the inevitable cash crunch is factoring, which is quickly becoming the preferred method of financing throughout the construction industry. Factoring simply means selling your accounts receivable to a factor for a discount. The factor actually buys one or more (your choice) of the business's invoices, advancing cash immediately to the business - typically 60%-70% for the construction industry. Once the invoice or invoices are paid, the balance of the invoice is rebated less the discount fee which is in writing prior to the advance. YOU CONTROL THE TRANSACTION!

Some of the advantages of factoring over borrowing

When you borrow:

• It limits your flexibility;
• A lender will usually secure assets equal to a minimum of three times the amount of the loan;
• You cannot secure additional funds without renegotiating the loan;
• You must meet monthly payment obligations;
• There is a loan liability on your balance sheet;

When you factor:

• You don't borrow money;
• You make no monthly payments;
• You receive funds in 24 hours or less;
• You control your cash flow by determining how much you need;
• You increase the availability of immediate cash which can enable you to bid on more new jobs and earn additional supplier discounts;

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