Running a construction company requires a lot of effort on your part. From suppliers to end clients, there are a lot of parties to worry about and a lot of things to keep in mind to keep everyone, including yourself, happy. And, on top of it all, some issues are bound to arise from time to time, leading you to divert all your attention towards resolving them before you can continue with operations as usual.
Speaking of issues, it is the financial ones that cause the most trouble in your workflow. Your customers not paying their invoices on time can lead to a cycle of negative cash flow and mounting debt because you may not be able to pay your suppliers, for example. It is a vicious cycle that nobody ever wants to get into, and yet it is often inevitable in the construction industry. Late payments are a thing, and that is something you will need to make peace with.
Does this also mean that you’ll need to make peace with the fact that you’ll keep increasing your debts due to those late customer payments and that you will constantly have to deal with a negative cash flow? Well, fortunately, it doesn’t. What you have to do in order to avoid the negative consequences of unpaid invoices is hire a construction factoring company to help you turn those into working capital and not only continue business as usual but actually keep growing it.
But First, What Is Construction Factoring and How Does It Work?
Before you get to the part about choosing one of those companies to be your partner in such an important endeavor, you probably have a few questions on your mind that you want to get answers to. What does this concept entail, and how does construction factoring work at all? So, let me answer those questions in short before proceeding to the topic of selecting the perfect company for the job.
Construction factoring is, in essence, the process of turning those unpaid invoices into working capital. Companies that are struggling with cash flow due to long payment cycles and late payments can significantly benefit from this particular strategy. In short, what you do here is sell the invoices to a third party, referred to as the “factoring company,” and thus get the cash advance that you need. By using this option, your operations won’t be hindered by the customers’ payment timeline.
How does all of this work, though? It is all quite simple. First, you will find a factoring company, which is the most significant step, and we’ll cover the process of finding the right one below. Then, you submit the unpaid invoices to the company, after which the professionals will have to verify their authenticity and assess the creditworthiness of the customers.
Once everything is verified, you will get an advance, which will be between 70% and 90% of the amount on the invoice. From there, it is the factoring company that will take over the collection process and follow up with the customers for payments. After the customers pay the full amount, your company gets the rest of the money, also called a reserve. Of course, the factoring firm will charge certain fees for these services, so those will be deducted from the reserve.
Read more about this strategy: https://www.askmoney.com/investing/what-is-construction-invoice-factoring
How to Select the Right Company
Now that you’ve understood how all of this works, you will need to find and select the right construction factoring company to work with in the process. If you remember what I’ve been saying above, this is the first and crucial step in the entire factoring process. Choosing wisely is a must because that will affect the entire quality of the services you will get, and you undeniably want those to be perfect. So, let me give you some ideas on what to do when trying to make the best choices.
First off, you’ll need to find at least a few different factoring companies that are ready to offer such services. You can find them through the Internet, as most will have their official websites, meaning you’ll be able to visit them and get better acquainted with the actual services. Additionally, you can also ask other construction business owners, if you know any, for their recommendations and then add those factoring companies to your list of potential ones as well. This, of course, is if those other business owners are willing to share the information.
When you have found a few potential companies thanks to the steps above, the next thing you will have to do is research them all in a bit more detail. Starting, naturally, with checking how long they have been in business and whether they are legitimate in the first place. Working with companies that aren’t legitimate or that aren’t experienced can lead to quite poor experiences, which is not what you want.
In addition to that, you should take time to find at least a few reviews written about the specific companies you are researching, as that will help you determine their reputation and figure out if past clients have been happy with the services they received. Your goal here, of course, is to find highly trustworthy and reputable firms. Once you’ve done the research on several different ones, compare the information and make an informed decision as to which one could be best for providing you with the factoring solution.