A small business is especially prone to cash flow issues throughout the year. With the recent fluctuations in the real estate market, owners of a handyman operation or a small construction business are especially suffering. Their clients may not pay them for at least 60 or 90 days, but they must pay their workers or face a walk off. Invoice factoring provides a great source of money for small business in the construction field.
Invoice factoring is a financing program that provides an advance on the funds against the invoices of the small construction business or handyman operation. This results in immediate access to cash for businesses who invoice a certain amount per month. The program is easy to set up and does not cost much money.
Construction factoring requires that the construction business invoice the client and send a copy of the invoice to the factoring company. The factoring service will then verify the invoice with the client and, assuming all is well, advance approximately 70 percent of the invoice amount to the construction business. This money can be used to pay office staff, construction workers, and other accounts payable. Once the client pays the invoice, the factoring company will forward the remaining 30 percent of the invoice, minus a small service fee, to the construction company.
The main benefit of this small business tool is that the construction company or handyman operation will have a predictable cash flow, enabling it to pay bills regularly. The company will receive an advance payment shortly after invoicing. The amount of construction factoring is set up to grow with the cost of the projects performed. There are few eligibility requirements and the program can be established in a couple of days.
The accounting function within a handyman operation or small construction business is no less important because the company is not large. The need to have steady cash flow in order to pay workers and accounts payable is paramount. Using a service that provides construction factoring will allow a small construction company to focus on getting new business, not collecting payments and trying to make payroll.
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