Construction factoring is a process where a company sells its accounts receivable to a factoring company at a discount. This allows the company to have the cash immediately to pay for construction costs. The construction company then pays the factor back, plus a fee, when the receivable is paid by the customer.
Factoring and Its Effect On Cash Flow
Factoring can be a great way to improve cash flow for construction companies. It allows them to get the money they need to pay for construction costs right away, without having to wait for customers to pay their invoices. This can help them avoid delays in construction projects and keep costs down.
Construction factoring can help improve cash flow by providing businesses with immediate access to capital. This allows businesses to continue operations while waiting for payments from customers. Factoring also provides a higher level of liquidity than traditional lending, making it a great option for businesses that need to quickly improve their cash flow.
Accounts Receivable: Due Diligence
There are some things to keep in mind when considering construction factoring.
First, it’s important to make sure that the accounts receivable being sold are of good quality and will likely be paid by the customer. The last thing you want is to sell your receivables and then have customers default on their payments.
Second, it’s important to factor in the fees charged by the factoring company. These can vary depending on the size of the receivable and the length of time it takes for the customer to pay. Make sure you understand all the fees before agreeing to construction factoring.
If you’re considering construction factoring, it’s a good idea to talk to a few different companies and compare their rates and terms. This will help you find the best deal for your company. You can also check out online reviews of construction factoring companies to see what others have to say about their experiences.
For more information on construction factoring and other business topics, check out the Achieve Capital Advisors website. We’ve got a ton of information on all aspects of business, and you can reach out to us quickly on the web form or via phone.