As the country, in general, emerges from the recent economic downturn, people are no longer hesitant to purchase or finance new residential or commercial properties; this has slowly unfurling benefits for the construction industry. In the following, we’ll cover a few of the most prominent benefits that construction factoring has for construction companies in need of cash alternatives.
The Basics of Construction Factoring
The essence of factoring – in general – is to improve your cash flow for immediate business operations. The method is based on the invoices that you already have “out in the field”; but have not yet recouped. To this end, a factoring company will take responsibility for those invoices by buying them from you. In exchange, the company will recompense you about 80% of the total value of the invoices, for the price of a fairly standard administration and processing fee.
The factoring company is then responsible for going after the purchasers over time; once they reclaim payment for all the invoices, they will send you the remaining 20%. It is at that time, usually, that they take their admin fees from this 20% first.
Benefits of Factoring to a Construction Company
Let’s face it: you need cash for business operations. Having a negative cash flow can also adversely affect any other construction loan applications you may have in the works, such as for equipment financing.
Additionally, factoring has a much faster approval process than traditional loans, and may also have lower costs if you have a lot of invoices out in the field. The more you have, the lower the costs, in fact – which means that if you’re a really small construction company, it might not be a profitable method for improving working capital/cash flow. Unlike some types of loans, you can use the cash you receive from factoring for anything your business needs – employee payment, inventory, cash flow improvement, etc.
Contact 360 Commercial Capital today to learn more about how our factoring services can boost your cash flow.