Construction Receivables: A Quick Finance Solution For Construction Firms
The construction industry has special needs with regard to financing. Construction projects can be large and last for many years and payment schedules may not be favourable. It is therefore not uncommon for construction receivables to be used as an asset to raise cash finance. Cash flow is essential for any business to survive - the construction industry is no different. Construction financing through the assignment of receivables is now possible through companies such as West Asset Management.
When construction receivables are factored they are sold to a finance company for the value of the original invoice less the commission fee charged. The fee is usually a small percentage of the invoice total. Although, the construction company will not receive the full value of their accounts receivable it does have immediate cash with which it can pay its workers and suppliers. In addition, an administrative burden is lifted from the construction company as the invoice is no longer its concern or responsibility. The factoring company will collect the debt when it becomes due and take any steps required if the debt becomes overdue. There is no longer any chasing of debtors to be squeezed into the working day. The construction industry is known for its cash flow problems. Small construction companies find it difficult to retain the best craftsmen and contractors because their cash flow problems mean they do not always pay their workers on time. When this happens more than once, workers vote with their feet. By factoring invoices the construction company is able to meet pay roll on time which means a happy and loyal work force. Suppliers to the construction industry often offer additional discounts for prompt payment of invoices. If a construction company is able to settle its supplier invoices in good time it makes projects more profitable through savings made on materials. Once again, factoring construction invoices can produce cash much earlier in order that supplier invoices can be paid on time. The construction industry relies heavily on manpower but it also needs to be able to purchase or hire tools and equipment. Capital expenditure can make a big hole in cash flow forecasts but having the right tools for the job means work can be completed more quickly and often more safely. Increasing Health and Safety legislation means a lot of protective clothing and equipment is no longer an option. Its purchase is mandatory. This is another area in which construction financing can benefit from the assignment of its receivables. Those who factor their invoices in the construction industry speak of the biggest advantage being peace of mind. They can complete the job, draw up the invoice and receive the bulk of the payment within days. Knowing they can meet their financial commitments frees up construction managers to better project manage current jobs rather than having to spend days on the telephone appeasing contractors and suppliers over late payments. West Asset Management, for instance, and other factoring companies allow construction companies to factor the invoices they choose. There are usually no requirements to factor all invoices. The construction company is able to utilise the factoring services when it needs them most. Any construction financing option that allows the business to keep operating rather than closing down because of cash flow problems has got to be worth considering. There are many advantages to factoring construction receivables and these almost certainly outweigh the small charge for the service. |