One of the most common challenges a business in the construction field faces is maintaining cash flow. Yet most businesses are subject to progress payments, meaning they generally do not begin to receive payments until 30, 60 or even 90 days into the project. The answer to the inevitable cash crunch is factoring, which is quickly becoming the alternative financing method of choice throughout the construction industry.

What is Factoring?

Factoring means selling your accounts receivable – whether they be invoices, progress billings, requisitions. or AIA’s -- to a finance company (known as a factor) for a discount. The factor actually buys one or more of the business’s invoices, advancing cash to the business– typically, 70%. Once the invoice or invoices are paid, the factor will rebate the balance of the invoice after deducting its fee.

Who Can Benefit from Factoring?

Contractors, subcontractors, suppliers, and every other small to medium-size construction-related business can benefit from factoring.

How Can the "Quick Cash" Available through Factoring Be Used?

Construction-related businesses can use the funds available to them through factoring to pay their workers, make tax, workers’ comp, union dues, and insurance payments…and buy the materials necessary to complete their jobs. It can help a business that is facing a cash flow survive – and it can help a business grow by providing the funds needed to go after new jobs and new markets. The recent rebuilding following the devastation of Hurricane Katrina is the perfect example.

What Are the Advantages of Factoring?

  • Speed. A business that finds itself in a cash crunch may receive its funding in as little as 24 hours.
  • No Monthly Payments. Since the business does not actually borrow any money, it makes no monthly payments.
  • Continuous Cash Flow. Factoring provides a business with cash whenever it is needed.
  • Relies on the Financial Strength of Customers. Factoring provides funding based on the financial strength of a business’s customers, not on the business’s own financial strength.
  • Stimulating Growth Opportunities. Factoring offers businesses the chance to grow by providing them with access to funds they can use to bid on other jobs, get new customers, go into new markets, and increase their scope.
  • Accessible to Unbankable Businesses. Any business with accounts receivable can qualify for funding through factoring.


  • It limits your flexibility
  • A lender will secure assets equal to a minimum of three times the amount of the loan
  • You can not secure additional funds without renegotiating the loan
  • You must meet monthly payment obligations
  • There is a loan liability on your balance sheet


  • You don’t borrow money
  • You make no monthly payments
  • You receive funds in 24 hours or less
  • You control your cash flow by determining how much you need
  • You increase the availability of immediate cash which can enable you to bid on more new jobs and earn additional supplier discounts.