Accessing Cashflow for Contractor Wages

 

Being a builder in the construction industry is often as frustrating as it is rewarding. Cashflow can present a major challenge if you are ready to submit a bid on the next large build but haven’t been paid yet on outstanding invoices. Unfortunately, you have contractors to pay and development costs to cover and with minimal cashflow, you’re stalled in production.

There are quick and relatively easy ways to access cashflow for development finance and contractor wages if you understand your options. Invoice factoring is a big consideration at this point.

 

Understanding Development Finance and Contractor Wages

Many times a property development company is the main builder, under which a number of contractors are employed. It is up to the builder to design and build, while contractors take on some parts of the project such as pipefitting, welding, painting and so forth. The builder then needs to pay each contractor per a JCT agreement, in this industry called a JCT Design and Build Contract.

Much of this is legal jargon, but the key point here is that a builder oversees all aspects of a construction job from design to completion and is responsible for making sure everyone gets paid for their portion of the project. JCT regulations provide standard industry contracts that both parties must follow or face legal repercussions. Paying those contractors agreed wages is a big part of the contact, so what happens if cashflow is a problem?

 

How Invoice Factoring Can Keep the Ball Rolling

One of the major setbacks when you are a construction firm is keeping ahead of those outstanding invoices. If money is slow coming in then designing, planning and bidding on the next job is almost impossible. Not only will you stall on your current project, but you may lose the next one because you are unable to submit a proposal on time. For a construction firm, there are multiple benefits of invoice factoring that just might help keep the ball rolling.

In effect, invoice factoring is simply a loan against invoices you have already sent to your debtors and are waiting for payment on. When those payments aren’t made timely and are slow coming in, you run the risk of depleting your operating capital. Invoice factoring offers up to 90 per cent of the amount due you and that money can be made available within a day or two. Sound simple? It really is!

how the back office solution works

The Prime Benefits of Invoice Factoring to Get a Head Start

Since a builder can have funding available within 24 to 48 hours, it then becomes possible to get a head start on the next big job. This is crucial in terms of development finance and contractor wages. Invoice factoring allows for:

  • Funding to keep architects and designers working on the next bid.
  • Funding to pay contractor wages so they don’t walk off the current job.
  • Funding for building materials necessary to complete the tasks at hand.
  • No need to hire additional personnel to chase down payments because chasing those invoices is left in the factor’s hands.
  • Freeing you up to focus on management of current jobs while seeking new jobs to bid on.

And those are really just a few of the benefits of invoice factoring when looking to access cashflow for development finance and contractor wages.

 

Beginning and End of Construction Jobs Are of Prime Importance

Builders know that the most important parts of staying solvent are the beginning and end of any project. Yes, it is important to stay in compliance with building codes which are up to industry standards, but that’s a given on any job. It’s what happens before you begin and at the end that can have a profoundly negative impact on the health of your construction firm.

In this industry, clients seek bids from a number of builders. They weigh the cost and benefits of each bid and then choose the builder to contract. If you can’t pay your designers and architects to draft specs on a new job in time to put together a bid, you will not get the job.

At certain agreed points you are supposed to be getting paid but when those invoices aren’t paid, operating capital is unavailable. The end of a job is when the largest invoices are sent which will provide you with the capital you need to move forward.

Therefore, if you can’t submit a bid timely due to delinquent payment of invoices, you will soon go under. Invoice factoring can offer a quick solution while you continue moving forward so that you can win that next big bid without worry of being able to pay for materials and contractors.

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Ian is a marketing and finance content specialist with extensive knowledge in the commercial and personal finance industries. If it's finance and Ian doesn't write about it, then it's probably not worth reading!
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