One of the most common challenges a business in the construction field faces is maintaining cash flow. Yet most businesses are subject to progress payments, meaning they generally do not begin to receive payments until 30, 60 or even 90 days into the project. The answer to the inevitable cash crunch is factoring, which is quickly becoming the alternative financing method of choice throughout the construction industry.

What is Factoring?
Factoring means selling your accounts receivable – whether they be invoices, progress billings, requisitions, or AIA’s -- to a finance company (known as a factor) for a discount. The factor actually buys one or more of the business’s invoices, advancing cash to the business– typically, 70%. Once the invoice or invoices are paid, the factor will rebate the balance of the invoice after deducting its fee.

Who Can Benefit from Factoring?
Contractors, subcontractors, suppliers, and every other small to medium-size construction-related business can benefit from factoring.

How Can the "Quick Cash" Available through Factoring Be Used?
Construction-related businesses can use the funds available to them through factoring to pay their workers, make tax, workers’ comp, union dues, and insurance payments…and buy the materials necessary to complete their jobs. It can help a business that is facing a cash flow shortage survive – and it can help a business grow by providing the funds needed to go after new jobs and new markets.


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