Construction companies often experience cash flow difficulties when payments from clients are set 30 to 90 days in the future. One solution to this dilemma is invoice factoring, which involves the sale of unpaid invoices to a factoring company. The factor then gives you an advance of 70 to 90 percent of the value of the receivables and remits the rest minus a fee when clients pay their bills. Here are some of the benefits of using this form of financing.
Receive Cash Quickly
When clients delay payments, construction companies sometimes experience difficulties taking on new projects. Invoice factoring solves this problem by allowing you to receive most of the payments for past work right away. This gives you the cash you need to keep working.
Maintain Steady Cash Flow
Managing cash flow is difficult for construction companies with late-paying clients because income becomes erratic. Invoice factoring gives you a steady stream of income whether or not clients pay promptly. An added advantage is that this stability occurs without your business taking on more debt, unlike the situation when you acquire traditional loans from banks.
Set Flexible Payment Terms
When you stabilize your cash flow through invoice factoring, you are able to offer more flexible payment terms to your clients because you are not so concerned about getting paid quickly. The advance funding from the factoring company gives you the cash you need to move on to your next project.
Get Help with Your Receivables
With invoice factoring, you receive help managing your receivables from the factoring company. This assistance includes handling invoices, organizing paperwork, communicating with clients, and collecting payments. If you opt for non-recourse factoring when clients don’t pay their bills you are not liable for the unpaid receivables.
Grow Your Company
Without having to worry about your cash flow, invoice handling, and collections, you can focus on other aspects of your business. These may include sales, marketing, and other activities that help your company grow.
For more advice on invoice factoring for construction companies and other businesses, contact Topfund Capital.