Why Your General Contractor Wants You to Factor Your Invoices
The final video in our What is Construction Factoring series has tons of valuable information. Read this information here or click below to watch the video. Over the last 6 blog posts and videos, we’ve shared a lot about contracting, construction, the ins and outs of what tier you fall under in the overall construction project. Also, the necessity of cash flow or working capital to keep everyone paid. So often times, our prospective clients that are wanting to sign up to factor their invoices with construction finance but I’m worried that my general contractor or my customer won’t like it. Or that they won’t let me do it, or may think less of me. We hear this all the time.
What we’ve found on the contrary that once you explain that the process to your customer, that you are selling an invoice for work that is already completed, they are pleased. That you are selling the invoice because you want to pay your materials on time, that you want to take advantage of those supply house discounts. Many supply houses offer discounts will give an early payment discount. Often times that discount alone offsets the fee that Construction Finance charges.
You general contractor requires you to submit unconditional or conditional lien wavers, proving that materials you’ve purchased have been paid for or will be paid for in the future. When you have a partner, such as Construction Finance, your lien wavers will be unconditional. You will have actually already paid for the materials before the customer pays you. So when the general contractors hear this, they are happy that we are yet another layer of protection for them. We ensure that no projects end up with lien wavers because vendors or suppliers haven’t been paid for materials purchased for the project.
It’s no fun to get to the end of a job and owe so much money to get that final lien waver. We find that our clients pay for materials as they go, using our funding. General contractors know that their lien wavers aren’t pending or conditional or waiting for those materials to be paid. No, they’re actually already paid for. General contractors like that. They also like knowing that you won’t be calling regularly asking, “when are you going to release that check, when are you going to release that check?” They like knowing that you have your cash flow in order. That know that you have money for your materials, they know that you are paying for your materials and they know that you have the cash flow to grow and take on more and more projects.
For example, one of our large clients was billing his customer about $100,00 a month on a large plumbing contract. Once he became a construction finance client we opened him a $250,000 line of credit that would be backed by his invoices. Now he has been awarded a 2.4 million dollar plumbing contract that will invoice $200,000 a month for the next 12 months. He shared with us that he could not have gotten the contract if he had not had Construction Finance’s help with working capital.
We have several success stories like the above. Another example is one of a seasonal contractor who invoice $300,000 to $400,000 dollars a month and has for many years. However, from March until October his expenses are so so high because of the seasonality of his particular job industry. So he has to spend, spend, spend for materials and labor until the end of summer. But then he has levelized billing plans with his customers so that he has a much more dependable income and receivables. So, he’s found that Construction Finance is a good partner to bridge that gap of the highs of summer and larger projects. He can use that working capital to pay expenses and employees during that exaggerated expense season of summer.
One more example is a small electrical client was awarded a large service contract for an international energy, gas, oil supplier. And like most large companies, they set the rules. One of the problems is that it pays every 45 days. He invoices them regularly. We partnered with him so that his growing crew can take on this job that was above and beyond and totally separate from what they normally work. So, with Construction Finance, he has a new revenue stream from a national energy company that pays him each month. We are able to keep him growing and taking on new projects.
Call John Sawyer at Construction Finance today to find out how we can help your company grow.