Construction finance is a highly specialised form of lending designed to help provide certainty and stability to contractors and subcontractors when it comes to managing their cash flow. A form of invoice finance, construction finance allows a percentage of the money tied up in unpaid invoices to be accessed immediately.
As soon as you raise an invoice, this can be submitted to the finance provider, who will advance you an amount typically between 70-90% of the invoice value. This money can then be used by your company immediately to allow for the funding of the next stage of the project.
All invoices are covered, whether these are for works undertaken as part of a contract, a construction agreement or purchase order, including certified and uncertified payment applications, staged invoices as well as sales invoices.
At this stage you have two options. You can either pass over the responsibility for collecting payment from your customer to the finance company; or alternatively, you can choose to keep your credit collection processes in-house. There are pros and cons for each option so it is important you carefully consider which is most appropriate for your company and the relationships you have with your clients. Once payment has been made, the finance company will retain a portion of this to cover the associated fees and charges due, before releasing the remaining balance to you.
The construction industry is notorious for late payments, long payment terms, as well as partial payments for part completed works. While this has been part and parcel of the industry for many years, it is still something which can place huge pressure on construction companies when it comes to managing both existing and upcoming projects, as well as paying suppliers and staff.
Construction finance aims to ease the pressure on the cash flow position of both contractors and subcontractors, by introducing an element of surety when it comes to your incomings. Due to the nature of construction, an uncertain cash flow situation can see operations quickly grind to a halt should a company find itself unable to purchase materials, or pay the wages of subbies, while milestone invoices remain unpaid. Attempts to grow the business can be even more challenging under such an uncertain financial position.
Construction invoice finance can help your projects run smoother, saving both time, stress, and resources.