Smooth Sailing: An Overview of Factoring
An ironic part of this blog is that I spend very little time covering what our company does.
I share things I read about in The Wall Street Journal. I ramble on mindlessly about the history of construction equipment. I talk about my job, and my dog, and the things sitting on my desk. But, I spend very little time talking about what we actually do, or why factoring can be a good choice for those in commercial construction.
And so, in short for those of you who are unfamiliar with factoring, what we do is lend against money that you’ve already earned, but that you won’t be receiving for another 30, 60, or 90 days.
In commercial construction, this is a common scenario: You submit your invoice or pay app to the general contractor. The general contractor approves it a few days later. Then, they submit all of the pay apps for that month to the owner, who then submits everything to the bank, and then…I don’t know. As far as I can tell, nobody knows. Those pay apps all just sort of sit somewhere, waiting for somebody to eventually release payment to somebody else.
Depending on the payment terms of your contract, things may hang out in limbo for as little as a week or two, or for as long as three months, and during that time, there isn’t much that you can do about it.
This is where factoring comes in: As long as your general contractor can sign off saying that the pay app is correct, and that they’re eventually going to pay you for the work, we can go ahead and advance you a percentage of the invoice amount. Then, when the time comes, your general contractor will simply release the check to us instead of you.
By doing this, you have the money that you need to handle payroll, cover overhead, and negotiate supplier discounts.
Those benefits are obvious, and they make up the core purpose of factoring.
What we aim to do, though, is to provide as much additional value and security as possible–after all, we succeed when you succeed.
This is why for no additional charge, we’re more than happy underwrite account debtors before you sign on the dotted line to begin a million dollar job–we want to make sure you’re working for people who will actually pay you, whether we’re factoring on the project or not. We also have an office full of accountants who will happily help you with your bookkeeping and pay apps, and who can advise you on which jobs seem to be most profitable. We can help manage lien waiver and supplier payments, making sure that jobs aren’t held up by frozen accounts or supplier liens. And, when worse comes to worse, we also have yours truly.
In the office.
That you can call anytime.