Factoring feels like a cash flow solution. It is a cash flow cost. A 3% factor rate on a 45-day invoice is 24% annualized. And the underlying problem — a billing timing gap — is still there.
A $200,000 invoice factored at 3% costs $6,000. That feels manageable — 3% is not much. But that invoice was going to be paid in 45 days anyway. The annualized cost of that $6,000 fee on a 45-day advance is approximately 24%. Most concrete contractors who factor invoices have never calculated the annualized rate. When they do, they stop factoring.
Factoring fees are deducted from the invoice payment before it hits your account. There is no separate line item in your P&L for factoring cost — it just appears as a reduced payment on a large invoice. Most concrete contractors who factor have never totaled what they spent on factoring fees in a year. The number is almost always surprising.
Factoring provides cash now in exchange for a fee. The billing structure that created the cash gap — early phases underbilled in the SOV, pay apps submitted late, AR sitting uncollected — is unchanged. Next month the same gap appears and you factor again. The fee compounds. The underlying problem does not go away.
When invoices are assigned to a factoring company, the GC receives payment instructions from a third party, not from you. Some GCs object to assignment of receivables — it is often addressed in the subcontract. And when the factoring company's collection calls conflict with your relationship management, you lose control of how a payment dispute is handled with a GC you need for future work.
Pull every factoring fee paid in the last 12 months. Total them. Divide by total invoices factored. That is your effective factor rate. Multiply by the annualization factor (365 divided by average invoice age in days) to get the true annual cost of capital. Most concrete contractors who do this calculation for the first time are paying $25,000–$60,000 per year in factoring fees on what feels like a 3% cost.
The factoring need starts because formwork, rebar, and mobilization costs go out before the first meaningful billing event. Front-loading the SOV — asking for mobilization and formwork line items billable at installation — recovers those costs in the first pay app instead of deferring them to later phases. On a $600K concrete contract, a properly front-loaded SOV can recover $60,000–$90,000 in the first billing cycle that previously required factoring to bridge.
Late pay app submission extends the cash gap by 30 days. Most concrete contractors miss at least one cut-off per month on at least one job. Every missed cut-off is another job that goes to the factoring pile. A billing calendar with GC cut-off dates and a hard submission deadline eliminates this entirely.
Outstanding invoices that have not been followed up on are the other major source of factoring need. If $150,000 in legitimate invoices are sitting uncollected at 45+ days, that is $150,000 in cash that could eliminate the next factoring transaction. Weekly collections calls on every invoice over 30 days — before the factoring call is made — convert existing AR into operating cash at zero cost.
This contractor had been factoring 4–6 invoices per month for two years. Total factoring fees in the prior 12 months: $38,000. He had never calculated it because the fees were deducted before the payment hit his account and never appeared as a line item anywhere. When SPM totaled the fees, the reaction was the same one most contractors have: disbelief, then immediate motivation to fix the billing structure.
From outstanding AR at engagement start — money already earned, already billed, sitting uncollected. Collected immediately without a factoring fee.
In annual factoring fees eliminated within 90 days of SOV restructuring and billing calendar implementation. That $38,000 went back to the business permanently — no factoring company required.
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