This week we speak to Jamie Davies, who’s in charge of Client Relations at Touch Financial, on the subject of factoring for the construction industry.
Hi Jamie. Thanks for doing this. Can you start us off by telling us more about business factoring?
Of course. Factoring is a type of invoice finance, which is a cash flow solution that releases a percentage of cash from invoices as soon as the invoice is raised (usually within 24 hours). With factoring, a business can avoid the hassle of debt collection by handing the responsibility over to the lender.
How does factoring work?
To summarise: a company raises an invoice, and sends a copy to the lender. There will be a notice on the invoice instructing debtors to pay the lender directly. Instead of waiting 30 days (or more) for payment from the debtor, the business receives a pre-arranged percentage of the invoice value in cash, almost immediately. Once the debtor has finally made the payment, the lender will credit the company’s account with the remaining balance.
How does factoring compare to more traditional forms of finance, like bank loans and overdrafts?
A factoring facility is generally easier to set up than a bank loan or overdraft, because there are less terms and conditions involved, and less information that the business needs to provide.
Why is factoring an ideal solution for construction businesses?
Factoring is useful in general because it provides any business an immediate cash injection. In relation to construction, it allows companies to pay their suppliers and contractors quickly, putting themselves in a position to negotiate better terms. They also don’t have to waste resources on debt collection, as the lender does this on their behalf.
It’s common knowledge that construction companies that invoice in arrears can wait a long time for payment, in the region of 30 to 120 days, sometimes even more! Factoring provides construction companies with cash in hand that can be used immediately.
It’s also common knowledge that construction companies are among the worst hit when it comes to late payments. There’s been parliamentary discussion of a Construction Code of Conduct that will help improve the situation, but that’s a solution that’s still a long time coming, if at all. Construction companies need funding now, to cover business costs or wages or to expand business growth, and factoring is a good, workable solution.
Lastly, how does a construction business select the most suitable lender?
Different lenders provide different packages and rates, and more and more lenders are open to tailoring factoring solutions to match the needs of businesses. Here at Touch Financial we are connected to a wide network of lenders, from banks to specialist commercial finance providers. This puts us in a position to find the best deal for construction businesses. Our service for recommending lenders is free, so I would encourage any interested parties to contact me for further assistance.
Thank you, Jamie Davies. To speak to Jamie or one of the other Touch Financial experts about an invoice finance facility, please call 08453889725, email firstname.lastname@example.org or fill in a Quote form, and a consultant will be in touch as soon as possible to assist you with your factoring needs.