Construction companies face seasonal slow-downs, large equipment purchases, and other situations unique to the industry. These challenges can sometimes make financing difficult, especially during slower periods of the year. Factoring, which involves construction companies selling unpaid invoices to an outside organization, can help the owners of these types of businesses gain faster access to cash. It is important, however, to select a factoring company with significant insight into how the construction industry operates.

Unique Challenges of Factoring for Construction Companies

The first thing the two parties need to work out is ensuring that the factoring company understands financial terms in the construction industry such as paid if paid and paid when paid.

Here are some other things to consider:

• Laws regarding lien releases can vary widely between states and change frequently. Both parties should understand the current requirements and continually monitor potential changes.
• When completing a job, contractors must provide themselves with a lien release as well as any other parties it hired during the process.
• Most contractors bill customers at certain intervals as they progress towards finishing the construction project.
• It is common for contractors to hold up to 10 percent of the fee as a retainer until they reach the status of project completion.

These are just four of the most unique challenges that both parties face before entering into a factoring relationship together. Transparent communication is essential to ensure that construction companies and factoring companies that do business together understand exactly what to expect from the transaction. Once everyone is on the same page, construction companies can benefit greatly from having access to cash now rather than waiting 60 days or longer to receive payments from customers.

If you own a construction company and need cash quickly, we invite you to contact Elevation Financial to learn more about the factoring process.