For new and rapidly growing construction business owners, factoring companies seem like a very appealing prospect. As these invoice factoring procedures help reduce the business cash flow cycle, such small yet promising businesses can quick get up and running.
These quality construction company factoring institutes eliminate the whole waiting process for paying off unsettled invoices and deliver funding aid to help these construction businesses expand their services or manufacture more sellable products quickly.
Moreover, even by considering the factoring firm’s discount, such businesses tend to net more profits with such factoring than without them.
In fact, service-oriented businesses can get up to 90% of invoice funds on the same day. As for companies involved in manufacturing hard products, they receive roughly 80% of the invoice funds on the same day.
Digging Deeper On How Such Factoring Companies Function
The invoice factoring process mainly involves of 4 crucial components. And they are as follows –
- The Business
- The Business’ debtors or clients
- One or more accounts receivable
- And a factoring firm to handle the factors
A Step-By–Step Explanation
Step 1 – A Business Selling To another Business and Requesting Issue Invoices Having 30-90 Days Due Period
When you sell goods or services to your creditworthy consumers, it roughly takes them 30-90 days to clear off the invoice dues. However; you need to procure the payment instantly to ensure the cash flow stays positive.
- For that, you sell unsettled invoices to the construction company factoring firm to get 90% of instant payment till the money comes once the consumers complete the full payment
- On receiving your application, the concerned factoring company will review it in one day. And after that, the company’s account’s representative will get in touch with you to sort out our customary financial needs and discuss your corresponding business goals.
Step 2 – The Factoring Company Will Verify the Invoices Along With Conducting A Thorough Background Check
The major concern for most factoring companies is your consumer’s ability to pay off the invoice due. Keeping this in mind, the factoring company will conduct verification along with a proper background check.
This Check-Up Involves Going through the Following –
- Uniform Commercial Code liens
- Judgment search
- Tax lien search
- Dun & Bradstreet search
And so on…! This takes around 4-5 days.
Once you get the approval, your chosen factoring firm will dispatch a proposal stating its concerning terms and rates structure. If you agree with their terms and rates, the factoring firm will then send you the legal documents.
- You will need to fill out the assignment schedule which points out the batch of invoices concerning a particular service or product
- Once done; you can check the invoice scheduling and relating payments within your account 24 hours every day
Step 3 – The Funding Will Start Instantly Once All Key Searches Are Done
You will get the funds inside 24 hours, immediately as your chosen factoring company gets and properly authenticates your invoices.
- You will get 90% of the whole gross invoice money through wire transfer once the invoices are thoroughly validated
- However, the invoice payment will be made right to your factoring firm from your consumers
Step 4 – The Factoring Company Gets the Balance in Full from Your Customers as Per the Laid Down Invoice Terms
- Keeping in mind your discretion, the factor may transfer the funds via cheque or thorough wire transfer
- Your business gets the funds well in advance in accordance to the invoice validation. And the factors complete this on the very day they get the invoices. On getting the payment, the factor delivers the remainder of the amount without the fee.
Now that you have a basic understanding on how such construction company factoring firms’ function- find a reliable factoring company to ensure your business keeps up and running smoothly.