Construction Factoring Dips Along With the Construction Industry

Very few companies are financing businesses in the construction industry today as the industry risk is still too great. Many general contractors and subcontractors are reeling from the effects of the building bubble.

And to add insult to injury, many construction companies who obtained a business loan will probably, or already have found themselves out of covenant. This is due to falling sales. Simply put, banks won’t let them tap into their lines of credit until their sales are back on track.

What’s more, even in the factoring industry, few companies dare to offer construction factoring since the risks of default are still high. However, in many cases a factoring company will be able to help. There are quite a number of firms specializing in construction factoring.

Historically, construction factoring has been used in the construction industry for years. The latest trends indicate that the recent economic downturn and tightening of the credit markets has been especially hard on the construction industry. Contractors are experiencing cash flow problems and having to focus on the new sustainable building code standards. The availability of commercial financing has been chaotic for the past year, so the situation is especially evident when seeking construction funding for commercial property.

Invoice factoring allows businesses to obtain funds based on their current accounts receivables. Construction subcontractors have to wait as long as thirty (30) to ninety (90) days to get paid for their outstanding invoices. Construction factoring advances funds against invoices and provides enough money to pay the bills.

Following are a few things you can do for starters, to prepare better if you are in the construction business. Before calling any business finance company, be sure to have your house in order, specifically:

1. Make sure you have up current, up to date financial statements. This includes a balance sheet, income statement/Profit & Loss, A/R aging report and AP aging reports

2. Handle any unpaid taxes as best you can,

3. Try to clean up your receivables – and quickly handle any accounts that are past due for more than 70 days.

Although there are no guarantees in this economy, these three steps that should help you better position your company for funding.

Also remember that the construction industry is one of several sectors that can benefit tremendously from invoice factoring. The sub-contractor, or construction company is no longer required to wait for payment before starting on the next phase of a project, or begin construction on a new project.

Factoring enables the sub-contractor or construction firm can realize quick turnaround of 48 hours on accounts receivable due for completed stages of a construction project. With construction invoice factoring, the construction company, or sub-contractor, can be paid virtually overnight for these invoices (accounts receivable) thus speeding up cash flow and improving the company’s ability to start immediately on the next phase of construction.

Author: Kristin DeAnn Gabriel – The Interface Financial Group (IFG) is North America’s largest alternative funding source for small business. The company provides short-term financial resources including construction factoring, serving clients in more than 30 industries in the United States, Canada, Australia and New Zealand. IFG offers expertise in factoring, accounting, finance, law, marketing and banking.

Article Source: EzineAricles.com – Construction Factoring Dips Along With the Construction Industry