Seasons that revolve around the construction industry have been a source of concern for contractors and sub contractors since the beginning of time. Construction factoring offers these companies and individuals a feasible solution to gain working capital immediately. Many companies that specialize in construction factoring have even gone as far as to completely revamp the system to cater to the construction industry’s specific financial needs. Where banks are skeptical to lend to construction companies, construction factoring generates more than a billion dollars of business a year by catering to them.
With that said, its easy to see the attractive aspect of offering construction factoring to these construction contractors and sub contractors. Typically, traditional lending institutions consider construction to be a risky business. This goes against the very nature of these financial institutions because they are taught to only invest in safe business prospects. Construction is a tough business and unless a contractor can present proof over several years of positive cash flow, traditional lending companies will not even look at the prospective client.
Construction factoring companies acknowledge and understand the intricate workings of the construction industry. One of the biggest factors to financial hardships revolving around the construction industry is the time delays and the cost overruns. Plans change, weather factors and determines working days and it is a rare occasion when a contractor says the job is done and far under budget. The construction factoring companies effectively foresee these situations and offer a viable financial solution. The construction factoring company purchases the accounts receivable invoices for a very fair factoring fee. The contractor is presented with the cash that enables the purchase of materials to continue ongoing work on any given project as well as paying the employees that are expecting their weekly salaries.
Most building contractors don’t have the resources financially or physically to take on more than a few projects at one time. The materials are expensive and the labor is expensive which prohibits the construction industry in a way that doesn’t affect most other industries. It isn’t unheard of that a small construction company has gone out of business because a project was delayed or various other risks associated with the construction industry. Construction factoring companies are designed to deal with this type of industry and often come from a construction background.
Construction factoring can’t change the very nature of the construction industry but they can provide the financial means to continue growing and expanding. Construction factoring companies are said to have higher fees than other industry factoring companies. This is all part of the ebb and flow of the construction industry and the understanding of how this industry operates. Construction factoring companies typically withhold a certain amount to cover any disputes around 25-30%. This may seem like a high rate but most construction contractors are more than happy to pay that price for the peace of mind that they are afforded.