Invoice factoring is a game-changer for contractors who wait months for payment.
How It Works:
- ●Complete work and invoice customer
- ●Submit invoice to factoring company
- ●Receive 80-90% of invoice value immediately
- ●Factor collects from your customer
- ●Receive remaining balance minus fees
Construction Factoring Specifics:
Advance Rates:
- ●Progress billings: 70-85%
- ●Completed work: 80-90%
- ●Retainage: Usually not factorable until release
Typical Fees:
- ●2-4% for 30 days
- ●Additional 0.5-1% per 10 days after
Timeline:
- ●Initial setup: 3-7 days
- ●Subsequent invoices: 24-48 hours
What Can Be Factored:
- ●Progress billings (with proper documentation)
- ●Completed work invoices
- ●Change orders (approved)
- ●Materials on-site (sometimes)
What CAN'T Be Factored:
- ●Retainage (until released)
- ●Disputed amounts
- ●Residential work (some factors)
- ●Uncreditworthy customers
Benefits for Contractors:
- ●Fund next project without waiting
- ●Cover payroll between projects
- ●Take on larger projects
- ●Don't turn down work due to cash
- ●Based on customer credit, not yours
Choosing a Construction Factor: Look for:
- ●Construction industry experience
- ●Progress billing capability
- ●Notification vs non-notification options
- ●Reasonable advance rates
- ●No long-term contracts (ideally)