Special Note to contractors and
subcontractors in the construction industry:
The
damage caused by Hurricane Katrina has created a huge demand for
construction services. This means there is a tremendous
opportunity for you to take on new business resulting from the Katrina
disaster. Don't let a shortage of working capital prevent you
from taking advantage of this huge opportunity. If you have money
locked up in receivables on which you are waiting weeks for
payment, then you may already be sitting on the working capital you
need. Also once you start a Katrina-related project you can get
advances on progress payments for completed work to keep your company
working and to expand on to additional projects. The damage has
been done. The rebuilding has begun. This is a chance for you to
not only grow your company, but to also help people by providing them
with jobs and communities to live and work in.
The following provides an overview of the Construction Receivables
Finance Program. Please review it. Call us with any
questions at 1-800-598-1178.
Overview of Construction Receivables
Finance Program
This program is designed for subcontractors in the construction
industry who perform work for general contractors with good
credit. It can also be used by contractors whose customer or
client has good credit.
This program allows subcontractors and contractors to acquire working
capital from invoices they have submitted for completed work. The
working capital acquired in this way can be used to pay employees, make
tax withholding payments, buy materials for another project, take
advantage of cash or quantity discounts for materials, or buy
equipment.
You should consider using this program if slow
payment from your general contractors or customer is preventing
your
company from taking advantage of new business, or is just making it
difficult for you to stay in business. With this program you can
concentrate on
growing your business rather than worrying about when you are going to
get paid for the work you have already done. Once your account is
set up, you can get an advance of up to 70% for completed work in as
little as 24 to 48 hours. Compare this with weeks you would
normally wait to get paid.
The types of subcontractors that can take advantage of this program
include but are not limited to the following.
-
carpenters
- roofing
- flooring and carpet
- plumbing
- HVAC
- underground utilities
- electrical
- tile
- fire sprinkler
- steel
fabricators
- landscapers
- excavators
- ceiling and
drywall
- paving
- security
- engineers
- architects
- appraisers
- inspectors
- supply houses
- space
planners
The following table
summarizes the key features of the construction receivables funding
program.
| Program
Feature |
Explanation
of Program
Feature |
| Preferred
Client |
Subcontractor
or contractor
doing work for a customer or client with good credit. Work must be done
on commercial
or development projects. Home improvement projects for consumer clients
is not
covered by this program.
|
| Type
of Financing |
Invoices
are being purchased at a discount. This
is not a loan. You are not
creating new debt with this program.
|
| Minimum
Invoice Volume |
None
but there is a $250 minimum discount per transaction. A
preferred minimum is about
$10,000 per transaction. |
| Maximum
Invoice Volume |
None
(based on the credit worthiness of the customer or client) |
| Credit
Worthiness |
Funding
decision is based on credit worthiness of the subcontractor’s or contractor's customer
|
| Funding Time |
Initial
transaction takes 5 to 7 days because of the due diligence checks. After that funding can be done in 24 to 48
hours after the invoices are presented. Deposit of funds can be done
via a wire
transfer. |
| Advance
Rate |
Up
to 70% of the invoiced amount less the “retainage” amount |
| Fees
on the Face Value of the Invoices |
4%
for the first 30 days. 1% for each 10
days thereafter |
| Fund
“progress payments” |
Yes |
| One
time due diligence fee |
$750
(used for account setup processing and UCC and Dun and Bradstreet
reports)
(This is requested after the funding company has determined that they
are
interested in pursuing a financing relationship with the client, but it
does not guarantee that they will
advance on all invoices). |
| Personal
Guarantee Required |
No
|
| Type
of recourse |
This
is a “non-recourse” program meaning if the general contractor does not
pay the
invoice due to credit problems, the subcontractor is NOT responsible to
repay
the advance. |
| Lien
Position |
The
funding company must be able to obtain a first position lien on all
assets. A
blanket UCC-1 is filed. |
| Excluded
contractors |
Home
remodeling contractors cannot be funded. |
Advantages
of this program:
- fast
and easy
- no
long term contracts to sign
- improves availability
of working capital
- may allow
access to cash or volume discounts for materials
- may
allow you to take on new business
- limited only
by ability of the subcontractor to generate new invoices for work done
- does not
depend on subcontractor’s credit rating
- protect
or improve your credit rating by paying your bills sooner
- does not
create new debt
- does not give
up equity interest in the subcontractor’s or contractor's company
- no personal
guarantees
- allows credit
terms to be offered to clients or customers
- get
credit reports on prospective customers and continuous monitoring of
the credit
status of existing customers
- assistance
with collections
- invoices
can
be presented for advance part way through the payment cycle to reduce
the fees
(e.g. submit an invoice that normally would be paid in 90
days at day 50 in
order to cut the fees in half)
Example:
An electrical
subcontractor has completed work on a project where the invoiced amount
is
$100,000. The contract specifies that
10% will be held back as “retainage” to allow for correction of defects
in the
work performed. The contract also says
that payment terms are net-60. The
electrical subcontractor cannot wait 60 days to receive payment because
cash is
needed to pay the subcontractor’s employees. The electrical
subcontractor decides to seek accounts receivable
financing under the program described above. The funding company
reviews the application from the
subcontractor and credit worthiness
of the general contractor, and decides to advance 60% of the
invoiced amount less the amount
held for retainage. The following table
shows how the numbers work out for this example.
| Invoiced
Amount |
$100,000 |
| Amount
Held for Retainage (10%) |
$10,000
(Computed
as 10% of $100,000 = $10,000) |
| Amount
Used to Compute Advance |
$90,000
(Computed as : $100,000 - $10,000 = $90,000) |
| Advance
Percentage |
60% |
| Amount
Advanced |
$54,000 (Computed as: 60%
of $90,000 = $54,000) |
| Fee
percentage |
7%
(Computed as 4% for the first 30 days and 1% for each of the next 3
10-day
periods) |
| Fees
for 60 day advance |
$7,000 (Computed as: 7% of $100,000 =
$7,000) |
| Amount
Rebated To Subcontractor When The Invoice Less Retainage Amount Is Paid
|
$29,000
(computed as: $90,000 - $54,000 - $7,000 = $29,000) |
| Total
Amount Received By The Subcontractor After All Defects Are Corrected
And The Full
“Retainage” Amount Is Paid To The Subcontractor. |
$93,000
(Computed as: $54,000 + $29,000 +
$10,000 = $93,000) |
If you are subcontractor or contractor who needs working capital to
grow your
business or just to stay in business, and you have invoices for
completed work
on which you are awaiting payment from a customer with good
credit, then please
contact
us today to see if this program would be a good fit for your company.
Call us now at 1-800-598-1178
to get started.
|