Construction Invoice Finance
The construction industry face unique challenges that impact cashflow and prevent growth. Businesses are faced with staged payments, partial payments and long payment terms, this can have a negative effect on cash flow.
Construction Finance will allow you to access cash you have tied up within 24 hours of submitting an invoice or raising an application for payment. This will allow you to access the working capital to pay for your supplies or simply take on new work.
What is construction invoice finance?
Construction invoice finance is a type of asset finance based lending that is designed to work for the construction industry regardless if you are a main contractor or sub contractor.
This business finance solution will advance funds of up to 75% regardless if your business works on a contractual debt, uncertified stage payments, applications for payment or simply an invoice basis.
This highly flexible form of borrowing can be used to free up funds from your debtor book, relieving the pressure placed on your cash flow. Many businesses are turning to this option to take back control of their finances, allowing them the breathing space needed to move forward.
Why construction businesses should consider invoice finance
If construction businesses are looking to fulfil contracts often find that they don’t have sufficient working capital to pay things like wage bills, plant suppliers, merchants or simply buy the materials to keep the job running.
Construction invoice Finance can help your business by providing specialist finance which allows upfront funding against certified and uncertified applications for payments and invoices for work completed. This gives businesses peace of mind that they have funding in place at every stage of a contract.
Construction finance works well for main contractors and sub-contractors in the construction and building sectors. Any industry needs working capital as it is the blood of a business, without it the business will fail. This type of funding product for the construction industry helps to provide a working capital solution to help pay suppliers, contractors and employees.
It is worth noting that construction invoice finance is not authorised and regulated by the financial conduct authority.
The Benefits
- Cash can be released against certified and uncertified payment applications, staged invoices or sales invoices
- Receive up to 75% of the invoice amount in 24 hours
- Works for both contractors and subcontractors within the construction sector
- Fully managed credit control or opt for confidentially keeping it in house
- Instant cash flow improvements
- Optional Bad Debt Protection (BDP) to protect against non-payments
Types of invoice financing for the construction industry
The needs of construction businesses tend to vary according to growth stage and their specialist industry sector. To help you work out which type of construction finance will suit your business, here is a brief guide to the three main funding solution options:
Invoice discounting
Invoice discounting for construction companies is a confidential facility when a company’s unpaid invoices are used as collateral for a loan. Invoice discounting companies enable businesses to leverage the value of their sales ledger.
With an invoice discounting company, when sending out invoices to customers a proportion of the total amount becomes available from the lender, which provides your business with a source of working capital throughout the month while you wait for your client to pay their bill.
The benefit of invoice discounting is you maintain responsibility for your sales ledger as well as any outstanding amounts chased and invoice processing. The main difference between this method and invoice factoring is that your customer is not aware that you have taken on cashflow finance. If you prefer to keep the financial arrangement confidential from your customers then discounting may be the right product for you.
You no longer have to wait up to 120 days to receive settlement for your services, and you remain in charge of your own credit control processes, meaning that you continue to chase late payments and therefore your customers are not made aware of any third party involvement.
Invoice factoring
Invoice factoring for construction companies is when a business sells its sales ledger to a third-party company. It’s a form of factoring finance and will give your business an effective way to improve its cashflow position.
What is invoice factoring, it is where the lender provides the credit control service to recover payment of the unpaid invoice.
Factoring companies allow you to release cash from your unpaid invoices quicker than having to wait between 30 to 90 days – and sometimes up to 120 days – for your customers to pay you.
The invoice factoring provider we handle credit control on your behalf, allowing you to concentrate on other areas of the business instead of chasing up late payments.
Construction spot factoring
Spot factoring for construction companies is a way for a business to access funds by selling unpaid sales debts to a 3rd party, a spot factoring company, on a one off basis in order to receive payment quicker.
The business will agree rates and fees with a spot factoring company and then decide which account it wants to assign to them. The spot factoring company, once your bill for services that have been completed is verified, will advance a proportion of its value, usually around 70-85%, to the business.
The spot factoring company will then chase up the amount from the client and once paid to them in full will reimburse the business with the outstanding balance minus the agreed fees.
How much does construction finance cost?
The cost of construction finance will depend on a number of factors, including the size of your company, the ‘risk’ of the debt, the facility amount. Typically, the price of construction finance will look something like this*:
For Example please see potential costing on a invoice value of £1000:
Service Fee- 2.5% Charged on every invoice- £1000 x 2.5% = £25
Bad Debt Protection- 0.7% – £7 (Optional )
£1000- £25= £975 to advance against
80% x £975- £780 available to you
Assuming you lend this money for 4 days at a discount rate of 4.5% annual (0.375% per month) this will cost £4.33
This invoice will cost £29.33 to factor without bad debt protection of £36.33p with BD
How does construction finance work?
Construction finance works by allowing construction firms to bridge the gap between paying suppliers, sub contractors and material merchants and getting paid by your clients.
- You supply your labour, plant and materials or services to your customers.
- Send your customer a request for payment and send a copy to the finance company or upload to the online portal.
- The lender will advance up to 75% of the outstanding amount.
- Your customer settles the amount in full.
- The payment clears and we give you the remaining 25% balance minus the finance fee.
Who is eligible for construction finance?
Eligibility for construction finance is subject to status but not as strict as you may think, if the following apply to you:
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You are the main contractor or subcontractor.
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Minimum turnover £200,000
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Issue applications for payment (verified or uncertified).
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Raise invoices for stage payments for incomplete contracts.
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You hold a CIS UTR number.
If you do not qualify for construction finance, you may be able to get a general working capital facility like a construction loan.
Why should you work with us
We are passionate about helping construction businesses in the UK, grow and sustain that growth through carefully selected funding solutions and financial services offerings.
As a specialists broker in all things funding we are sure we can find a facility that works for you and your business, to apply for construction finance the process is quick and easy, simply complete the online enquiry. If you prefer a call back please feel free to get in touch on the number above
F.A.Q’s
What is Construction Invoice Finance?
Construction Invoice Finance is a specialist funding and support solution designed for contractors and subcontractors who provide construction services under a contract, framework agreement or Purchase Order. It provides funding by advancing cash against the value of invoices raised on the completion, or part-completion for staged contracts, of work carried out.
How can invoice finance benefit my construction business?
Once your facility is agreed, cash tied up in unpaid billing is usually released within 24 hours so you can stay on top of your operating costs and the costs of buying raw materials for your projects. Construction finance enables you to access cash tied up in contractual debt, uncertified stage payments or applications for payment.
Can Construction Finance help my business?
You are a contractor or sub-contractor registered in England, Scotland or Wales. You raise an Application for Payment for part or completed works. Work under a contract, framework agreement or Purchase Order. You want to maintain a healthy cash flow to build working capital.
