Factoring: A Great Ally of the Construction Industry

The tightening of the credit market has been hard on several businesses, especially the construction industry which is responsible for building our nation's houses, corporate facilities, factories, apartments, offices, schools, roads as well as bridges. Therefore, the general contractors and sub-contractors still may be experiencing cash flow problems - meeting payroll or buying supplies -long into the New Year.

Divided into 3 basic areas, construction includes: 1) Building, including general contractors who build residential, industrial, commercial, and other buildings. 2) Civil engineering construction where contractors build roads, bridges, highways, and tunnels, and 3) Specialty trade contractors, who work on projects like carpentry, painting, electrical or plumbing.

But there's more to construction than just new structures - this industry also takes care of site preparation, repairs, maintenance and improvements on old projects.

In addition, this industry takes care of the income and the lives of architects, engineers, inspectors, appraisers, carpenters, brick masons, electrical and drywall contractors, flooring and tile contractors as well as those who are working on asphalt companies. As such, these people could very much take advantage of invoice factoring to help them get by during these challenging economic times.

Construction jobs are typically done by general contractors, who specialize in a type of construction which is either residential or commercial building. General contractors are responsible for the whole job - but some of these functions are sub-contracted to specialty trade contractors.

Usually, specialty trade contractors obtain work orders from general contractors, property owners and even architects. Owners, occupants, architects and rental agents, however, directly order repair work from these contractors.

Because the industry is very much dependent on economic business cycles, it's easily affected by changes in interest rates as well tax laws. For instance, a small modification in state or local regulations could result to a cancellation of a job or a construction of a new project.

There's been an increase in factoring among contractors during the previous year, and it's helping to provide the cash flow required to pay suppliers, meet payroll and pay for insurance, even workman's compensation. Factoring allows companies to go ahead with the project - rather than wait to be paid - because funds given to them are acquired from their current accounts receivables.

Truly, invoice factoring is very useful to the construction industry. Why? Because when factoring is used, the sub-contractor, or construction company, does not have to wait for payment before starting on the next phase of a project, or begin construction on a new project. As such, construction companies are given a quick turnaround - usually 24 to 48 hours - on their accounts receivables. More importantly, with construction invoice factoring, the company only has to wait awhile before it can gain access to cash, thus improving its ability to get the project done.

Invoice Factoring and the New Year

Many small businesses had to stop spending last year around this time of year. But today, signs suggest that the recession is almost gone and small businesses can get on with their normal "lives." So today is a great time to consider what the recession has done to your business.

Think about how the economic changes have affected your industry in general. Are the characteristics of your customer base changing? Or is it that your competitors have reduced their prices? What about their service offerings? And are you still on the game? Recessions cause changes, and it's imperative to assess all aspects of your business.

If you have gone through hell and back - laying off people, reducing salaries - just to survive, then you may want to take note of these things considering that the business outlook is getting clearer.

Firstly, consider the fact that several organizations are hiring again - this means that you can get new people from businesses that have went down the drain. But your employees also might get a better offer elsewhere. It is important to satisfy them, or else, risk losing them to your rivals. Most people are looking for making more money to pay off their bills after the last year.

Of course, be practical on how you spend your money. Now that the economy is getting better. Priorities should include new computers, instead of redecorating. Settle long-term debts and short-term debts.

Most businesses have learned how to use invoice factoring to survive the recession. This business tactic would be well suited after the New Year. It's a great way to pay down your debt, while keeping cash flow efficient.

And there is a better piece of news than just factoring - there's what we call "spot factoring." This is the tendency of factoring once invoice one at a time. Take note that spot factoring, unlike a loan, is the purchase of financial assets like receivables. Also, loans involve two parties, invoice factoring involves three. Banks base their decisions on a company's credit worthiness, while factoring is based on the face value of the receivables. With invoice factoring, there are no minimums, no maximums, and no long-term commitments.

By availing of a single invoice factoring, your business - regardless of how small - can get back on track. Typically, businesses don't get immediately paid for products/services delivered. This has a negative impact on the cash flow and may even deter the business from generating new orders on time. Invoice factoring benefits businesses that do not get paid for 30, 60 or 90 days by advancing up to 90 percent of the invoice total, at the time of order fulfillment. IFG checks the creditworthiness of the client's customers and can provide funding within as fast as 24 hours.