Construction Factoring: Keep Projects Moving Between Draw Requests
Retainage, slow draw schedules, and 60-day payment terms create cash flow pressure that can stall even profitable construction jobs. Factoring gives contractors and subcontractors immediate working capital from verified progress billings.
Why Construction Companies Need Factoring
The construction industry operates on one of the most complex payment structures of any sector. General contractors hold retainage (typically 5–10%) until project completion. Draw schedules are based on percentage of completion, not on when you incur expenses. And sub-tiers often wait 90 days or more for payment while carrying significant labor and material costs.
For subcontractors in particular—electrical, plumbing, mechanical, concrete, framing—this creates a dangerous cash flow gap. You're funding crews and buying materials weeks or months before you'll be reimbursed. One slow-paying GC or a single disputed pay application can jeopardize your ability to start the next job.
Construction factoring solves this by advancing against your verified progress billings and pay applications immediately—without waiting for the owner-GC-sub payment chain to complete.
How Construction Factoring Differs from General Factoring
Construction factoring involves additional complexities that specialized factors are equipped to handle:
- Mechanics lien exposure: Factors who specialize in construction understand lien rights and how to structure advances that account for potential lien challenges
- Retainage carve-outs: Most construction factors advance on the non-retained portion of progress billings, then handle retainage collection separately when the project closes out
- Joint check agreements: Some GCs insist on joint check arrangements with material suppliers; experienced construction factors navigate these efficiently
- Contract review: A specialized factor reviews project contracts and pay application documentation before advancing, ensuring the billing is properly documented
Who Qualifies for Construction Factoring?
Construction factoring is available to a wide range of contractors:
- Specialty subcontractors billing general contractors on commercial projects
- General contractors billing owners on private or public construction
- Construction materials suppliers billing GCs or project owners
- Construction staffing agencies billing project management firms
Approval is primarily based on the creditworthiness of the project owner or GC at the top of the payment chain. Strong prime contractors and public project owners make for the strongest factoring candidates.
Typical Rates and Advance Amounts
Construction factoring typically offers:
- Advance rates of 70–85% on verified progress billings (lower than other industries due to lien and retainage risk)
- Factoring fees of 2–4% per month
- Separate handling for retainage releases at project closeout
Frequently Asked Questions
Can I factor a progress billing that includes retainage?
Most construction factors advance on the billable (non-retainage) portion of your pay application and handle retainage collection separately once the project closes out.
Does construction factoring work for public sector projects?
Yes—government construction projects with creditworthy public owners are often strong factoring candidates. Public owners are highly creditworthy, which can result in favorable advance rates.
How does factoring work when my GC pays slowly?
The factor takes on the responsibility of collecting from your GC, freeing you from the follow-up burden. You receive your advance immediately while the factor handles collection on the standard schedule.