For a construction business, access to working capital is critical. Cash moves in and out of a construction business fast.
Due to the payment processes involved in the construction industry, contractors usually wait a long time to receive their money for completed work. This can create cash flow pressure, as certain elements are typically outsourced to other specialists, who often extend shorter credit terms than the ultimate client, creating a cash flow gap. Construction invoice finance can help with this.
Access to working capital when you need it
The right construction invoice finance facility can help you access working capital when you need it. Typically, funders will lend against certified applications for payment, but some will lend an amount against unverified applications and even work in progress.
An invoice finance facility can offer “on demand” finance for the construction business, which means rather than having to wait for their clients to pay, they can drawdown the funds when needed, providing full control over cash flow.
Despite the current economic climate, there are still plenty of funders out there keen to work with construction businesses.
The process of getting a construction invoice finance facility
Funders will want to understand the paper trial, i.e. what happens between the work being finished and the construction company being paid. They’ll also want to get an idea of what the debtor book looks like and what sort of clients are being worked with.
Funders will also want to see what kind of contracts sit behind the underlying work, and what happens and who is responsible in the event of a dispute. This is to reduce the funders risk, as they want to make sure any funds they lend will ultimately be recoverable.
Ideally, the construction company will use some kind of cloud accounting system, and keep accurate records of work being completed and invoiced for. The better the financial management, the easier it is for the funder to make an informed lending decision.
Why work with a finance broker?
A good finance broker will take into account your goals and needs. They will know which lenders are most likely to help the construction business out with their specific situation. A good broker will also save the time and hassle of multiple applications, while presenting the deal to the funders with a high level of detail, allowing them to make the most well informed lending decisions