A company in the construction industry approached us to source factoring or invoice discounting for them. The company was turning over £5m and had been self funding to date but was forecasting significant growth to be coming from larger contracts that they had won which they thought might be difficult to fund from existing resources.
The company was operating as a subcontractor in the construction sector and the new larger contracts would be subject to Applications for Payment etc and not invoices so most traditional factoring companies would not be interested in offering them any sort of facilities at all.
We introduced them to two different types of factoring companies in order that they could ascertain the costs and benefits of each offering on it’s own merits. The first was a traditional factoring company that has historically been happy to offer factoring and invoice discounting facilities to the construction industry and the second was a spot factoring company as we thought their product more suitable in this instance.
The traditional factoring company offered them a facility but insisted that all of the company’s turnover be put through the facility however the beauty of the single invoice factoring company is that they don’t insist on whole turnover and the company was free to factor as many or as few invoices as they wanted.
Whilst factoring companies claim to offer an initial payment against invoices of up to 85% that is only true in certain industries and unfortunately construction isn’t one of them with advance payments of 50% to 60% being the norm. The spot factoring companies that Factoring Solutions deal with tend to offer much higher advance rates even to construction companies so as this particular company was able to raise the required levels of funding from factoring a smaller percentage of their Applications for Payment spot factoring worked out considerably cheaper. In addition to the cost saving on rates there were other significant benefits in going down the spot factoring route as there were no minimum fees to worry about and no minimum contract period either resulting in the ultimate in flexibility.
Spot factoring is ideal for companies who’s funding requirements vary from month to month especially for the type of construction industry companies that traditional factoring companies refuse to help so for independent specialist advice from a construction industry financing expert please contact Factoring Solutions on 01827 707680 without any cost or obligation at all.