6 Ways Accounts Receivable Factoring Helps Construction Contractors
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Whether you’re a general contractor or a sub, money always seems to be an issue. And not only when times are lean. If your business is growing fast, it can be hard to keep up. Even the busiest construction contractors can find themselves without the cash they need. Small business loans such as accounts receivable factoring can smooth the way and open more doors.


Every contractor knows the squeeze – that time between landing a new job and seeing any revenue from it. Take Matthew C., an electrical contractor. He turned to us at UCS for help. And the rest, as they say is history. His story could easily be your story.

Construction work progresses in phases. As a contractor, you need capital to fund the initial phase. You’ll need supplies and equipment, and you’ll have to pay your crew. Once the job starts, you might not get paid for one phase before you’re supposed to begin the next. Sometimes you have to wait 45 or even 60 days. Even if your business is financially strong, this slow-pay process can hamper your ability to operate efficiently. Let alone expand your operation.

I think CPA Richard E. Gavin sums it up well. “Simply stated, contractors go out of business because they run out of money, not because they run out of work.” The right kind of small business loans can help. But all too often, I talk to contractors who have bought into popular myths about small business loans. One of those myths is that banks are your only option. Believing that can strangle your plans to grow your construction company. Instead, accounts receivable loans can make a dramatic difference.


With a traditional business loan, you borrow money based on your own business credit and ability to repay. With receivables factoring, you sell your outstanding accounts receivable to a third party. You get the money right away. Not all of it — the lender pays you a discounted amount. The difference between the receivables total and what you receive is the lender’s profit. They take over collecting from your customers.

The beauty of this is that you’re eligible for receivables factoring even if you have bad business credit. The lender (technically called a factor) is relying on your customers’ good credit. Because factoring isn’t a traditional business loan, you have no payments to make. And no interest to pay.


This type of financing is very popular with contractors for several reasons:

  1. Quick approval and funding. You get the money you need right away, rather than waiting for slow-paying customers or government agencies. You can keep working.
  2. The amount you can borrow depends only on your total accounts receivable. For instance, here at UCS, we can advance anywhere from $5,000 to $5 million to clients. We can also tailor cash distributions to fit your needs. You can get all your cash up front, or we can dole it out in monthly, bi-monthly or quarterly payments. What matters is what serves your cash flow best.
  3. You can use factoring to fund a one-time need, or use it as an ongoing source of revenue to even out cash flow and increase working capital.
  4. You’re able to negotiate lower prices because you’re able to pay suppliers quickly.
  5. You can get out of the collections business. I know you’d rather do almost anything than make collections calls. I understand. And it’s easy to back-burner collections because you’re busy. But that just delays getting paid. That makes it harder to pay your bills, and it can damage your business credit. On the other hand, factoring lets you spend time on building your business instead of collections.
  6. You’ll have peace of mind, knowing you can pay your bills on time and maintain needed cash reserves.

All these advantages give you greater control over your construction business.


When cash doesn’t flow smoothly, businesses can easily develop bad credit. I think the construction industry could be the poster child for this problem. Accounts receivable funding is one of the small business loans that can help repair your bad credit.

Factoring speeds up your cash flow. It also stabilizes it. When you have the money you need, you can pay your bills on time. You can also plan better when it comes to future expenditures. That means you can improve the bad credit you might have now and also avoid credit-damaging late payments in the future.


I quoted Richard Gavin earlier. He says cash flow planning is critical for contractors. In his experience, “companies with the most control over this process are the ones most likely to be in business ten years from now.” Among other things, better control comes from three actions that speed payment:

  1. Closing out completed projects as quickly as possible
  2. Issuing payment requisitions as quickly as possible
  3. Staying on top of collections

With small business loans such as factoring, you have #3 covered.

There are other things you can do, too. “Know how to negotiate your contracts from the beginning to protect your construction business,” advises business consultant Sandra Clitter. She recommends you:

  • Ensure labor costs will be paid phase by phase as work is completed
  • Build storage costs into your contract, in case a project is delayed
  • Always submit payment requisitions in time, and follow up to be sure submissions are complete, to avoid payment delays
  • Know what is required to release retained money for final payment

It’s your cash flow, she says, so it’s up to you to protect it. “Taking the time to understand the terms of the contract and scheduling out your cash flow realistically can make a huge difference in the profitability and security of your business.” That said, you’ll still have ups and downs. UCS is here to help, with receivables factoring or other small business loans to keep your construction business healthy and growing.

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