Invoice Factoring Explained for Construction Companies

Construction companies face a unique cash flow challenge: you perform work now but don't get paid for 30, 60, or even 90 days. Invoice factoring solves this problem.

How Construction Factoring Works

1. You complete work and invoice the general contractor or property owner.
2. You submit the invoice to a factoring company.
3. The factor advances 80-90% of the invoice value within 24-48 hours.
4. When the customer pays (30-90 days later), the factor releases the remaining balance minus their fee.

Why Construction Companies Use Factoring

• Bridge the gap between completing work and getting paid
• Take on larger projects without worrying about cash flow
• Make payroll consistently even with slow-paying clients
• No debt — factoring is a sale of an asset, not a loan
• Qualification is based on your customer's credit, not yours

Costs to Expect

• Advance rate: 80-90% of invoice value
• Factoring fee: 1-5% per month (varies by customer creditworthiness and volume)
• Additional fees: Some factors charge setup, wire transfer, or monthly minimum fees

Construction-Specific Considerations

• Progress billing: Some factors accept progress invoices, not just final invoices
• Lien rights: Understand how factoring affects your mechanic's lien rights
• Notice of Assignment: Your customers will be notified that payments go to the factor
• Retention: The typical 5-10% retention held by GCs affects your available amount

Choosing a Construction Factor

Look for factors that specialize in construction. They understand progress billing, change orders, retention, and the unique payment dynamics of the industry.