What is Progress Payment Financing?
Progress Payment Financing is an invoice financing product that caters to the Construction Industry funded by lenders that provides advanced partial or periodic capital to either a Supplier, Commercial General Contractor, or a Commercial Subcontractor.
The advance would be based on a percentage of the full value of the invoice for the current project they are working on upon clearing certain phases of the job. While a Contractor is in the Work In Progress phase of a project, a company cannot request for the full value of an invoice as of yet.
This program can be used to unlock a portion of capital from the total invoice value at specific percentages of completion of a project (i.e., when the job is 30% complete, 60% complete, and 80% complete), Instead of a company waiting until the end of a job to receive the final invoice for future payment, and then likely Factoring the Invoice to receive a capital infusion.
Using Progress Payment Financing, companies can be able to draw down capital incrementally as the project is moving along. The Company could utilize the capital that is funded in stages to either manage the current project or to use the capital to take on additional contracts at the same time.
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- Construction Companies
- Commercial General Contractors
- Government Contractors
- Commercial Subcontractors
- Government Subcontractors
- Companies that Supply the Construction Industry
Progress Payment Financing allows for companies involved within the Construction Industry to receive capital infusions from a portion of the project’s full invoice value. Based on the Company completing specific portions of the project. For example as stated earlier after completing either 30%, 60%, and up to 90% of a contract.
This product can come in handy especially since most Commercial Construction jobs take a while to complete. Plus the majority of Commercial Construction Contracts upon total completion of the project issue Invoices for payment that range in term anywhere between net 30 to net 60 business days.
This kind of a lengthy payment cycle per job could potentially tighten the Company’s cash flow during a contract for quite some time. Progress Payment Financing could be the product that helps to keep a Construction related company liquid vs. the companies capital being tied down.
Progress Payment Financing is paid out by converting to Construction Factoring once the project is completed, approved, and the full invoice has been issued. Not every lender that Factor’s Invoices Will work on Construction Invoices due to the complexities typically associated with collecting on Construction invoices. Also, not every lender that offers Construction Factoring will offer Progress Payment Financing.
Lenders that offer Construction Factoring that also funds Progress Payment Financing will want the main client issuing and paying the invoice to sign off on certain documents to reduce their risk. They will typically want an invoice verification letter signed, including a no-offset letter, to ensure the borrower of the financing only has to complete the work and have it approved to be paid. The specific content of every letter may vary yet they generally include a provision to validate:
- The work is accepted as expected
- The invoice will be paid in full
- The work has been inspected by the client per stage
For Companies involved within the Construction Industry, whether as a supplier or as a Commercial Contractor Progress Payment Financing could assist companies to grow and scale by using the capital that this product could provide to grow and scale their businesses.
Progress Payment Financing can provide benefits to every player up and down the Construction Industry payment chain.
Progress Payment allows companies to get paid as they go
For Companies in the Construction Industry, one of the best reasons to use Progress Payment Financing is that they do not have to wait until the end of the job to request invoice payment.
An incremental payment schedule throughout the lifespan of a job could help to make cash flow much more comfortable to predict and control.
This product can help companies to avoid going into debt
Progress Payment Financing and the subsequent Construction Factoring that follows are advances against the full value of an invoice. Companies can utilize the product to free up working capital without having to incur debt in the form of a loan.
Progress Payment Financing can help to spot payment problems
If a company is billing as they go vs. billing once at the completion of the job, it will be easier to spot a payment problem. If, for example, the first few Progress Payments are on time, and then, later on, payments start to take longer and longer, it could alter the Company that the project and or the client are experiencing some financial issues if the Company had waited until the end of the project until it sent out its first invoice for payment. They may not have known about the financial issues until then. By then, it may be too late, the owners may or may not have money left to go after.
This product could also let a company know if they should stop work if they are not getting paid
If a company spots a payment issue due to the billing as they go, the Company can thus stop working until the payment issue is resolved. Whoever is not paying their invoices that aren’t paying you, stopping work will get the owner’s attention quickly.
- The Company has completed and had inspected and approved the portion of the job segment they want to use Progress Payment Financing on.
- The Company has already sent an invoice to your client and a copy to the factoring company for the partial payment
- The invoice is verified by the Commercial client
- The Company is related to the Construction Industry with Commercial clients
- The Companies Commercial clients are reliable payers that are credit insurable
- The Company must invoice a minimum of $50,000 per month
- The Company must be willing to provide 6-12 Most Months of Business Bank Statements
- 2 Most recent years of Business Financials
- Including Profit & Loss and Balance Sheet
- 2 Most Recent Years of Business Tax Returns
- Copy of Most Recent 941 Filing
- Full Aged AR Reports with Detailed Payer Information by Insurance Provider
- Accounts Payable Aging Summary
- The owner (s) Personal Financial Statement Company Debt Schedule
- Proof of Ownership
Progress Payment Financing allows for companies involved within the Construction Industry to receive capital infusions from a portion of the project's full invoice value.
In closing, The Construction Industry has been growing year over year since the Great Recession, reaching 1.31 trillion U.S. dollars in 2019. Commercial General Contractors, Commercial SubContractors, and Suppliers all play a significant part in the industry.
Considering the timeline, it takes to be fully paid for a completed Commercial Construction project. Businesses may require additional working capital to maintain the Company during jobs or to take on additional projects.
We know the benefits that Progress Payment Financing can provide to companies looking to free up their capital to grow. Troy Business Grouphas a team of seasoned Business Financing Consultants that specialize in providing clients with access to Progress Payment Financing.
Please apply online, email us for an appointment, or call us today. Our team is committed to helping your business grow with Progress Payment Financing and will guide you through the loan process each step of the way.