How to Make Payroll While Waiting to Be Paid
We’ve gone over the difference between these quick working capital advances verses selling invoices to a factor. So now, let’s walk through what most of our clients see as a typical job scenario. Most of our clients are large sub contractors or service providers on larger projects. Watch this video as John Sawyer, owner of Construction Finance breaks it down.
Here would be an example, there’s a general contractor on a project. Let’s say the project starts on September 1, 2016. Let’s say your company was just awarded this job and it’s a little bit larger than you’re used to receiving.
Let’s say you’re used to paying 10 employees at $200 per day each. You’re paying $2000 a day and you begin the job on 9-1. Most large construction projects allow you to invoice by the 20th – 25th of the month. So if you submit your invoice to be approved for payment on the 20th, then you’ve already spent $2000 a day for 20 days paying employees. Now, this isn’t even including materials, overhead or your paycheck. So you’ve already got out $40,000 in basic payroll out before you ever send your first invoice in for payment approval.
Typically we’ve found with our clients that they need an architect’s approval, project manager’s approval that the work has been done, there are no set offs and no defects. The architect needs to sign off and then the owner needs to approve the work and agrees to submit payment for the invoice the following week. On a good payment cycle the general contractor will receive that payment on 10-10 and most G.C’s are typically good about releasing those funds to the underlying sub contractors. So, around 10-15 you receive your money for the $40,000 that was accumulated in the first 20 days of the project. However, we are now at ANOTHER 20-25 days out and only just now receiving payment for the first invoice.
So, if this is a 2 or 3 month project, there’s another $30,000 or $40,000 and possible to have $70,000 to $80,000 out before you even receive your first invoice payment check.
Many of you have no cash flow issues whatsoever. But some of you may want to take that job that’s a little bit larger and the profit margins a little bit bigger. Jobs where you walk home with more money when the project is over. And when you get your punch list money, you get to keep it! You made a bunch more profit.
Consider this, when you first started that job and invoiced $40,000 on the 20th, we would have purchased that invoice for $40,000. We would have funded you the day you invoiced, so long as everything was approved. You wouldn’t have had to wait that second round of invoicing and would have only had to float half as much money.
Construction Finance will purchase your invoice and fund you the day of invoicing. We will wait for the architects, owners and general contractors to release the payment.
Call today for more information 870-277-0658