Maintaining a steady cash flow in a construction company can be difficult. Invoice financing is a great way to access more funds immediately. But what exactly is invoice financing, how does it work and what are the benefits your company can leverage from it?
Find out if invoice financing is the right form of lending for your construction company.
What is invoicing financing?
Invoice financing is a type of loan made against future payments. The lender uses an unpaid invoice as security for funds.
How does invoice financing work?
An example would be a £10,000 payment from a customer to a construction firm. The client has put terms of payment of 60 days on paying the invoice. This locks the construction company out of their funds for up to 60 days.
By having an agreement with an invoice financer, the company can access up to 95% of the invoice amount immediately through bank transfer. While the lender holds on to the invoice and receives the full payment in a trust account controlled by the lender 60 days later.
How construction companies benefit from invoice financing
Provides financial certainty
Invoice financing can help you overcome cash flow problems. It can be a challenge to overcome the strict payment periods of 30 to 90 days clients place on invoices. This leaves the construction business with financial uncertainty. Invoice financing can dispel this uncertainty and provide you with quicker access to your funds.
Unlocks cash for milestone projects
This form of financing is particularly helpful on milestone construction projects. A lot of construction firms find it difficult to access funding to buy the materials for the next milestone in the project after completing the previous stage. Finance invoicing will allow you to complete milestone projects seamlessly as your cashflow won’t be stuck behind a milestone goal, such as an application for payment
Streamlines payment processes
Invoice financing also frees you up from having to chase invoices to meet your deadlines. Meaning you can concentrate your attention and efforts where they matter most. This saves you costly delays on development projects.
Speedy Access to Funds
Invoice financing is a quick way to access cash in an emergency. Up to 90% of the funds will be transferred to your bank account within 24 hours. This flexible type of lending is great for dealing with those unseen hiccups in cash flow management.
Types of invoice financing
Invoice Factoring
Invoice factoring hands over credit control responsibility for the involved invoices to the lender. So, it is up to them to collect any payments. It is a great service to use if you are looking to free up the time you spend processing and chasing invoices.
The downside of this service is that your customers will be aware you are using it.
Invoice Discounting
With invoice discounting the credit control responsibilities remain with your business. This is the easiest and most basic form of invoice financing. It is also a discreet form of lending that your customers will not be aware of.
The benefits of invoice financing
- Speedy process – that unlocks up to 90% of funds in 24 hours
- Invoices are the security – no need for additional collateral
- Scalable form of lending – as turnover grows so does your cash flow
- It is a flexible form of lending
- Improves cashflow for your business
- Bad Debt Protection can be added to protect against non-payment
Full Metal Finance is dedicated to supporting construction firms by providing construction companies cashflow solutions and financing services. Our advisors have experience working with various services in the construction industry to bolster their cashflow. Our account managers work with your business on an individual basis to provide you with the tailored support you need to grow.
If you are having trouble getting a conventional bank loan or asset finance, our asset-based lending service can lend you a helping hand. Contact us today to see if invoice financing is the right cashflow solution for your business.