What is Commercial Construction Factoring?

The commercial construction business can be quite lucrative, because no matter the economic situation or the season, there’s always a demand for construction. Whether it’s taking contracts for projects big or small, more often than not any startup business will see a decent amount of success provided that they’re able to do a good job. For the most part, provided that the contracts don’t stop entirely, there shouldn’t be too many problems for a small or medium sized business to get their feet wet.

However, this is an industry where the allotted time for paying invoices can often range from one month all the way to three. This means that when you’ve gotten to the point where you want to take that next step forward and evolve the business into something greater, you just might not be able to find the right opportunity. After all, while the construction industry is known for the large returns, it’s also known for the slow payments. It isn’t even that payments come in late – even if payments are on time it can still take ages to receive them. This is where an agency offering commercial construction factoring services comes into the picture.

How can these services help the situation?

These types of agencies help pull companies that are suffering this commonplace stagnation out of the quicksand, basically giving them a fighting chance to really get the ball rolling. Regarding how they do this exactly, they do so by targeting the source of the stagnating construction company’s issue – slow cash flow. These business owners know exactly what they’re capable of and how they want to spend their resources, but they’re not coming in fast enough because of the reasonable timeframes. Instead of waiting on your invoices to be paid before you can do anything, these agencies offer to buy your invoices in exchange for taking a relatively small percentage of the value as a fee.

How does it work exactly?

By purchasing the invoices, these agencies are basically taking the responsibility away from you, and placing it squarely on their shoulders. This means that the customers who would have paid you will now have to go through the agency which bought your invoices, because your business has already been paid by the agency. It’s a relatively simple but surprisingly effective strategy.
By freeing up the responsibility for the customer from your business, it allows you to concentrate on making an effort to grow your company. In exchange, as stated above, your business will not be receiving the full amount of the invoice in the same way you would if you had waited the required number of months for it to arrive on your doorstep. What you get in return is a much faster cash flow that you’ll be able to spend however you like.

What if the customer doesn’t pay the invoice?

In most situations, if the customer cannot pay the invoice then the agency ends up losing money. There’s always a gamble involved, but surprisingly the party that takes the most risk isn’t your business this time around. It’s very different from when you have to take out a loan, because you’ll end up risking quite a bit for the extra bit of funding. When it comes to commercial construction factoring, these agencies will be the one picking up the tab.
However, it’s also important to note that not all agencies will have this type of business model. If the lender you utilize has a recourse deal set in the fine print, then you will still have to be the one to shoulder the responsibility of a customer who doesn’t pay.

Should I still apply even though I might still have to shoulder customer fees?

There is still a very big reason why many construction companies still go along with it even if they still need to shoulder the fees of a customer who doesn’t pay – and that’s because they get their money straight away. This allows most businesses certain freedoms to enact plans that they wish, which in turn could benefit the company greatly. This cash boost among many other advantages could result in the cash flow becoming even better than with the boost already provided by the agency. Whether or not you wish to apply for factoring with a recourse deal is up to you, but your company still has the advantage either way.

Are there any prerequisites?

Because lending agencies often put themselves at great risk when they have a non-recourse set up, there is understandably an extensive credit checking
process before your business is accepted. After all, if a business has practices or has customers that simply refuses to pay, then the amount that a lender might lose in that situations could be very significant. Fortunately, this is about as far as the prerequisites go.

The only things that your business really needs is for it to be completely legitimate, and for your clients to generally make their payments on time. The real businesses that benefit from factoring are the ones that stagnate because even if they might have clients who are capable of paying on time, the timeframes are so long that they can’t do anything growth-oriented with the revenue, using it only to pay for necessities rather than making bigger moves.

To conclude, the construction industry can be a challenging one for businesses of any size. It’s an industry that’s constantly fluctuating, so your company needs to know how to evolve in order to keep experiencing success. Unfortunately, many businesses are unable to do so because of the relatively slow cash flow of the industry. What commercial construction factoring does is it speeds up the process significantly, which in turn allows businesses to flourish and truly make their mark with the revenue that they receive. While it might still be borrowing at its core, in the end you are selling your own invoices, so the money is yours no matter how you look at it.

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