FOUR WAYS TO FUND AN UNPAID INVOICE.
Four products get sold to contractors waiting on money and they're nowhere near equivalent. A bank line of credit is borrowed money secured by the business, and it runs 8 to 12 percent annualized. Invoice financing borrows against specific invoices and leaves the collecting with you. Factoring sells the invoice outright, which puts a third party in contact with your general contractor's accounting department and changes what that customer thinks about your business. A merchant cash advance is the most expensive money a contractor can take, at 40 to 80 percent annualized, repaid by a daily debit that clears your account before payroll does. The cheapest option isn't on the list at all, and it's collecting what you're already owed.
The order these get considered in is the whole problem. A contractor with a Friday payroll and a 60 day receivable compares products by which one funds fastest, because that's the only variable the Wednesday afternoon cares about. Cost per dollar borrowed, who ends up talking to your customer, and what happens on day 40 of a daily debit are all invisible from that chair. So the decision gets made on speed and paid for on margin, every month, for as long as the arrangement runs.
WHAT IT MEANS.
Receivable financing is any arrangement that turns an unpaid construction invoice into cash before the customer pays it, and the four forms a subcontractor gets offered are a bank line of credit, invoice financing, invoice factoring, and a merchant cash advance.
There's a real difference between borrowing to buy an asset and borrowing to cover a shortfall. Financing a machine spreads the cost of something that earns for years, and a line of credit smoothing a known billing cycle is doing the same kind of work. Borrowing to cover a shortfall funds a hole that the business is going to reproduce next month, which is why the second advance is always easier to sign than the first. One question separates the two: is the money buying something, or is it filling a space that something else created?
Cost has to be compared as an annual rate or it can't be compared at all. A fee quoted as a percentage of an invoice isn't an interest rate until you know how long the money is out, and products priced in factors and daily debits are deliberately hard to convert. Convert them anyway. Once every option is expressed as an annual percentage, most of these conversations end in about four minutes.
HOW THE WRONG ONE GETS CHOSEN.
The products get compared on speed, not on cost per dollar
A bank asks for financial statements and takes weeks. An advance wires funds the same day. When the deadline is Friday, the fast one wins every time, and the price never enters the comparison because it's quoted in a form that's not a rate. A 1.4 factor on $100,000 is $40,000 of fees, and it's $40,000 whether the advance is repaid in four months or in six.
A daily debit takes control of the bank account
A line of credit is drawn when you decide and repaid when you decide, inside the terms. A merchant cash advance pulls from your account every business day ahead of everybody else, so payroll, material, and rent all queue behind it. That reversal of priority is what turns one advance into a second one, because the debit itself creates the next shortfall.
Factoring introduces a third party to your customer
Selling an invoice usually means the buyer collects it, which means your general contractor's accounting department is now dealing with a finance company about your money. Some GCs take no notice and some read it as a warning sign, and you don't get to choose which. That's a cost with no number attached to it, and it can outlast the financing by years.
WHAT IT LOOKS LIKE IN DOLLARS.
A merchant cash advance runs 40 to 80 percent annualized. A bank line of credit for the same business runs 8 to 12 percent. A $100,000 advance at a 1.4 factor costs $40,000 in fees, repaid over four to six months by daily ACH, and $800 to $2,000 leaves the account every business day while it runs. Those are the same borrowed dollars at several times the price, collected daily instead of monthly.
Say an invoice financing arrangement charges 3 percent to advance an invoice for 30 days. That's 3 percent for one month, so running it continuously through the year is roughly 36 percent annualized, before any additional charge for invoices that go past 30 days. Most construction receivables do go past 30 days. Run the same arithmetic on whatever you're quoted before you sign anything, because a fee isn't a rate until you divide it by the time the money is out.
A $3.4M civil subcontractor had four stacked merchant cash advances. The exit wasn't another product. Collections went first on $245,000 of overdue receivables, then job costing was rebuilt, then overhead was recalculated and cut from 32 percent to 15 percent, and the advances were retired in order of effective rate out of the cash the first three produced. Gross profit moved from 5 percent to 33 percent without raising a bid, and the last advance cleared about 12 weeks from the first call.
THE ORDER THAT COSTS THE LEAST.
Every invoice over 30 days gets called, in order of which one funds which obligation, and it gets called every week rather than when somebody remembers. This is first on the list because it costs nothing, requires nobody's approval, and produces cash out of work already performed. A contractor considering a financing product while carrying an aged receivables report is considering paying interest on money already owed to them.
Pay applications go out on the first day the contract allows rather than the last day the office gets to them, mobilization goes on its own line, and stored material gets billed where the contract permits it. None of that needs a lender and none of it changes what a job earns. It changes when the money reaches you, which is the problem the financing was being asked to solve.
If borrowing genuinely belongs in the picture, the cheapest form of it's a bank line, and banks decline contractors they can't read rather than contractors they dislike. That means monthly financials on a close date, a WIP schedule that ties to them, and a 13 week forecast that proves you know your own next quarter. The package is what moves the price from 40 percent to 12, and it's the same package the business needs anyway.
Advances get paid off in order of what each one really costs, funded out of collections and not out of new borrowing, and no new advance gets taken while the sequence runs. Consolidating them into another expensive product moves the problem rather than closing it. The exit is arithmetic and calendar, and the order counts for more than the size of any single payment.
THE OUTPUTS, NAMED.
FLAT MONTHLY FEE. NO SURPRISES.
Three tiers, priced by your trailing twelve month revenue. Which one you're in depends on how much of the work you want off your desk. No hourly billing, no payroll, and no add-ons.
Pricing
| Last 12 months revenue | Monthly fee |
|---|---|
| Up to $1M | $1,900 to $2,900 |
| $1M to $3.5M | $2,600 to $3,900 |
| $3.5M to $6.5M | $3,800 to $5,700 |
| $6.5M to $9.5M | $5,100 to $7,100 |
| $9.5M to $12.5M | $6,100 to $8,500 |
| $12.5M to $15.5M | $7,400 to $11,000 |
| $15.5M to $18.5M | $9,400 to $13,500 |
| $18.5M+ | Quoted individually |
Range reflects the three tiers below. Which one you're in depends on how much of the work you want off your desk. No payroll. No hidden line items.
You stop guessing.
You get the CFO work. Job costing built against the way you estimate, a 13 week cash forecast, monthly WIP, and a meeting every month that ends in decisions rather than a report.
Your bookkeeper keeps doing the books.
You stop touching the books.
Everything in Core, and we run the bookkeeping and the controllership as well. Nobody in your office is answering coding questions or chasing a reconciliation at month end.
We do the books. No payroll.
Every job shows its margin while it's still running.
Everything in Executive, plus the job costing and WIP platform set up, loaded with your cost codes, and managed for you every month. You never have to learn it.
We do the job costing.
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