Construction Factoring changes peoples lives through out the nation. Different industries go through different factoring challenges. Some of which are more frustrating than others. One industry with unique differences is the construction industry. It can be much more labor intensive when it comes to due diligence.
Subcontractors have found it very difficult to get financing from banks. This is because they are now required by regulators to hold reserves against those loans.
A lot of these subcontractors who can’t get bank financing are expert trades. What’s more? They once worked in larger companies. Many of them started their own companies after losing their jobs during a recession.
Though they might not be well equipped with managing a company, they are experts in their fields. This lack of experience means there’ll be hurdles to overcome in underwriting. The financial statements they present are not ideal, and A/R and A/P aging may not be accurate. Therefore, there is a need to provide more diligence in other areas.
Here are a few of the different challenges involved with factoring and construction:
Until the entire project is completed, general contractors withhold 5-10% from each billing.
Contractors, most of the time, are required to bill as they progress, especially for larger/longer jobs.
You’ll most often find terms like “paid when paid” and “pay if paid” in construction contracts.
These laws vary in each state and change all the time.
Subcontractors are required to execute and provide lien releases for themselves. They will also provide this for any extra workmen, they have used on a particular job in acknowledgement of payment receipt.
You have to make sure you know the ins and outs of all these, if you choose to use invoices for the construction industry. You must also be conversant with the various jurisdictions your clients are in.
Factoring companies face a lot of challenges around lien releases. These challenges go from the ever-changing lien laws to the forms, filing notices, and timing of filings that varies in every state.
The contract terms involved, make the construction industry more complicated. Businesses like transportation and staffing have lesser stress in comparison. A typical example is the “pay when paid” contract term. Most times, the payment and terms of invoices are extended to 45 or 60 days. It is also possible to get a 90 to 120 day extension with government projects.
Furthermore, the progress payment precondition is often subject to the work that has been accomplished. It’s also subject to the entire scope of the project. This often means that items have to be approved by the contractor-in-charge, architect, and then the owner. This delays the payment process and creates opportunities for disputes.
Another issue is noting all the subcontractors and workmen on each job. Any unpaid subcontractor can in the future jeopardize opportunities for the factoring company.
For Factoring Companies, one is sure to come across a construction company looking for capital assistance. This is because, since May 2014, there are construction fees valued at over $956.1 million. There is also nonresidential construction, which is 6.4% above in 2013 on the strength of the commercial/ industrial subsector.
It is more beneficial to partner with a factoring company who specializes in construction. This works more when you can’t provide the working capital they need.
Customer is king. To create a mutually beneficial venture, one is advised to find a partner that has a complimentary industry focus. This ensures your clients get what they need at all times. National Advance Group can help with any concerns your construction company has. We offer revolutionary Construction factoring program.
National Advance Group
1 linden place suite 404
Great Neck, NY 11021