# invoice factoring????



## gspot01 (Apr 21, 2010)

*looking to the future*

My personal thought is that you are running before you can crawl (not meaning to take you down in any way) but to explain my thoughts. You have obviously been bobbing along doing away ok and all of a sudden you get hit with this big contract. Instantly the eyes roll and all you see is pound notes. Now sitting back and looking at it would tell you that you obviously do not have the cash flow to bank roll this operation which means that you may have put in lots of years of hard work to get to where you are, only to get greedy and throw it all away because once you start thinking of giving money away just to get a job, the game is over. Bankruptcy looms its head.

Would you not be better going in and quoting for some of the work and handing away some of the work to someone else and making a good profit and a good contact which in the future will make you good money, cause you will still be here. Only my thoughts. :thumbsup:


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## DPCII (Mar 14, 2010)

foxes25 said:


> Yes of course we bill for icremental payments.
> 
> But again for everyone so quick to judge lets look at the situation
> 
> ...


Factoring is common, but not in the construction industry.

Working capital is financed in one of two ways - either through vendors, or through the capital markets (factoring, credit line, etc.).

Another option you have is to stretch your suppliers as much as you can. If you are able to offset your days receivable with your days payable, you will end up net neutral.

In the contrary, and no offense, if you were aware of the cash conversion cycle, as you are by your post, then your working capital management is in need of some serious review.

In the working capital fight, leverage is always key, he who has it wins - every time.


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## scottc (Jul 14, 2009)

*Factoring Agreements*

We had a subcontractor factor a substantial contract a few years ago. It does create a bit of a headache for the GC because the factoring company requires the GC to sign off on the amounts, stating that the subcontractor will be paid for the work.

In our case, the subcontractor walked off the job because he was out of money, leaving a lot of work to be done. Fortunately for us, the document we signed did not create an obligation to pay the factoring company for incomplete work, but I'm guessing it was an oversight that probably won't happen again on the part of the factoring company.

We now no longer agree to factoring. In addition to making the GC wary of using the sub, it creates more work for the GC who has to interpret the factoring agreements and decide who to pay. Also, we constantly got phone calls from the factoring company asking for payment.


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## oktex56 (Dec 30, 2011)

*My 2 cents*

1) Factoring has saved my business.
2) Just because you are not used to it dosen't mean it's not applicable..i,e, construction is usually way behind the times when it comes to change.
3) Let's face it, even as some have stated to be able to bankroll a job really translates you are a bank...lending YOUR hard earned money and getting ? what in return? You sure aren't getting interest are you?
4) The contracts are simple and straightforward...geez it's backwards thinking guys...so you lend the owner your money by financing the job, you also ask your suppliers to front materials until paid. Who benefits? The one who pays as he has the money collecting interest while YOU finance his job!
5) It costs $ to do business. I figure in the % when figuring the job with a best guess as to how long till payment. If you are using your money upfront to finance the job and are not charging interest...sheesh...oh well it's the way things are done right?
6) Every GC and sub around here have some sort of financing going. If they are using their own money...how smart is that...Business 101 guys.
7) I give options to owner/Gc when I propose. Either factor or pay 33% or materials on site payment within one week of arrival of same. Next payment is another 33% based on 1/2 job done...or other creative means. Final within 30 days of completion.
8) Commercial work is a bear sometimes as you get stretched out so factoring as a built in cost makes sense for me.

Just my 3 or 4 cents...lol

Steve


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## oktex56 (Dec 30, 2011)

*More thoughts as to why is someone who gets financinc considered about to go under?*

Just more thoughts and facts:

I also want to mention that the factoring company uses 70% on my jobs.

So I get 70% to use during the work and wait on the 30% less their fee. 

This has sure saved me tons of grief especially when (I say this in all deference to GCs) not many GCs I have dealt with pays until they get paid.

I also do not understand why any GC would assume that because someone is getting factored that this would be a sign of financial weakness?

One of my clients is a billionaire who gets ALL of his retail outlet malls (largest in the Midwest) financed by others...He could easily finance his own but chooses to use others money. 

Is he in poor financial condition because he chooses to finance instead of keeping his capital liquid?

Another example: I sold and designed high end solariums here for awhile. 

80% of my clients paid cash for their work. 

When we surveyed the people later or if they chose to divulge the fact that they used a second or home equity line of credit...did this fact make them weak financially and about to go under?

I personally don't think it means anything other than someone is smart and growing their business in a sound fashion.

I deal with 3 and 4 generation asphalt businesses that have grown their business during some great times financially. 

This takes nothing away from the fact that they are sound and perhaps flush with money.

Primarilally they perform state work which, BTW pays very timely every 15 days.

Many companies much smaller perform work employing either bank financing or factoring.

Does this fact make them unstable?

Parerwork was mentioned as being a nightmare...compared to what?

I have done federal work as a direct sub to a GC...not a good experience. Didn't factor and had a stack of forms 3/4" thick and waited 6 months to get paid. For me, that was a nightmare.

My paperwork with my factoring co. consists of a boiler plate form letter sent out to the GC, who signs and returns it. It simply states they are to pay factoring co. instead of me and why.

I have no more forms to submit to them and neither do they.

I can imagine that a staggered draw would present more thought but that's standard practice anyhow, so the obstacles presented in comments made make me perplexed as to why is it more hassle?

Any comments are appreciated.

Steve


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