![]() ![]() ![]() When you’re just getting started as a contractor, cash flow bottlenecks can stall your momentum. ![]() Businesses That Should Consider Invoice Factoring for Contractors The Startup Construction Business There will be a higher factoring rate with non-recourse factoring. Non-recourse factoring means the invoice remains with the factoring company, where they assume all the risk. Recourse invoice factoring means that if the customer does not pay within x days (usually 90), the contractor must buy the invoice back and assume the debt. Recourse vs Non-recourse – Most invoice factoring agreements between a contractor and financial company are recourse. It ranges from 1-5% per month of the open invoice. The Factoring Rate – This is the cost to you for using contractor invoice factoring. This is usually 70-95% of the invoice, and will be calculated from the Net Invoice (which subtracts any retainage). The Advance Rate – This is the amount that you, the contractor, will receive from the factoring company upfront. The Invoice: Must be for an open invoice that is: It’s important to understand the components of contractor invoice factoring. The Main Components of Construction Factoring for Contractors Ultimately, the construction factoring company waits to get paid, while the contractor gets upfront access to cash in order to pay staff, secure materials and equipment, and even bid on more jobs. Once the customer remits payment, the factoring company sends the remaining balance of the invoice to the contractor - minus service fees (which is typically called the Factoring Rate).From there, the factoring company interacts directly with the customer (likely the general contractor) to receive payment on the invoice.A contractor, who has submitted their pay app and is awaiting payment, sells that invoice to a factoring company, which immediately pays the contractor 70 to 95 percent of the invoice value (called the Advance Rate).Contractors may choose “spot factoring” for one-off invoices, or “contract factoring” for the lifecycle of a project. The Drawbacks of Construction FactoringĬontractor invoice factoring is essentially working with an outside financial entity that provides a cash advance on an unpaid invoice, minus a fee.Businesses That Should Consider Invoice Factoring for Contractors.The Main Components of Construction Factoring for Contractors. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |