Some subcontractors try to negotiate quicker payments from their GCs. However, that strategy doesn't work very often. Another strategy is to apply for a business loan from your local bank. However, most banks will not lend money to a company unless it has substantial assets and can provide financial statements showing two years of profitable operations. This puts business loans out of the reach of most subcontractors. So what alternatives do you have?
If your biggest challenge is that your clients take too long to pay, you should consider construction factoring financing. Construction factoring offers a simple proposition. The factoring company advances you up to 80% for your invoices on delivered and accepted services (or products). This provides you the necessary funds to operate your business. Once the client pays, you get the remaining 20%, less a service fee.
As part of their services, factoring companies will check the commercial credit of your customers. This helps ensure that they only finance invoices that have a high likelihood of being paid. You can leverage this service, which most factors provide for free, to help ensure that you only work with financially responsible companies. Construction factoring companies consider your customers' commercial credit as one of the main requirements to qualify. That means that if you deliver quality services and work for good GCs or builders, your chances of obtaining financing are high.
If factoring is an option you want to pursue, you should keep in mind that the factoring company will need to verify each invoice it finances. This means that they will call your customer to verify that they are happy with the rendered services. Also, be aware that factoring companies cannot factor invoices for contracts in which the GC will only pay you, if and when they get paid.
About the Author
Marco Terry is managing director at Commercial Capital, a leading construction factoring company. For more information, please go to www.CCapital.net or call 877-300-3258.
