How a Construction Company Can Use Factoring
With the economy as ever-changing as it is, it is in every company’s best interest to do whatever it can to improve its finances. One way a company can do this is to use factoring. Of course, it should be noted that some business types use factoring in a different way than other business types. This article will focus on how factoring works in relation to a construction company, specifically.
What is Factoring?
For those who do not know, factoring is a type of business arrangement in which one business (in this case a construction company) works with a factoring business. The factoring business works as a type of middle man. The construction business will bill its client and make an invoice. The factoring company will then pay for the rights to the invoice. By doing this, the factoring company will pay the original business about 70-80% of the invoice cost upfront. Once the client pays for the invoice, the factoring company will then pay the original business the rest of the invoice, minus a small fee.
How is Factoring Beneficial to Construction Companies?
A construction company can benefit greatly from partnering with a factoring company. The primary benefit of this arrangement is that, with the help of a factoring company, a construction business can be sure that their invoice will be paid (at least in part) right away. This way, businesses do not need to wait for their clients for ages to receive payment.
What business doesn’t want their invoices paid right away? Any company in the construction field needs to receive payment as soon as possible if they are to have the funds needed to work on projects down the road. So, the sooner the business gets its invoice paid, the faster it will be able to take on new projects. Then, the glorious cycle repeats!
As a little added bonus, hiring a factoring company also means that the construction business can focus on actual construction, rather than invoicing. Factoring companies need the original business to make the invoice, but that is it. From there, the factoring company follows up with clients so the original business doesn’t have to. This way, each business can focus on what they do best.
So, if you run any kind of construction business and are sick of dealing with invoices and trying to get them paid, consider working with a factoring company. It can save you time and get you paid faster!
