Subcontractors hit milestones, complete work, and submit invoices then wait. Sometimes 30 days. Sometimes 60. Sometimes longer.
Meanwhile, payroll is due. Materials need to be purchased for the next phase. Crews need to mobilize. The next project is waiting. The work is done and the money is earned but it is sitting in an unpaid invoice while the payment chain runs its course.
That timing gap is one of the most persistent cash flow challenges in the construction trades. Subcontractor factoring exists to bridge it — converting approved receivables into working capital so operations can continue without waiting on general contractor or project owner payment timelines.
The process is straightforward. Once work is completed and documented, the invoice is submitted to the factoring company. The factoring company verifies the work and advances a portion of the invoice value typically 80 percent or more directly to the subcontractor. Often within 24 hours.
The factoring company then collects payment from the general contractor or project owner when the invoice comes due. Once payment is received, the remaining balance is released to the subcontractor after the agreed factoring fee is deducted.
There is no loan. No interest compounding. No balance to repay. The subcontractor is simply getting paid faster on work already completed.
For a full explanation of how the process works and the terminology involved, see the Subcontractor Factoring Definitions Guide [DF].
Construction payment chains move slowly by design. The project owner pays the general contractor. The general contractor pays the subcontractor. Each step involves approvals, documentation, and payment processing all of which take time.
Subcontractors sit at the bottom of that chain, performing work first and getting paid last. Payroll, materials, equipment, and overhead do not wait for the payment chain to complete. That gap between completing work and receiving payment is where factoring provides the most operational value.
Factoring is not a last resort. Many stable, growing subcontracting businesses use factoring as a deliberate working capital strategy because it allows them to:
The misconception that factoring is only for struggling businesses is addressed directly in the Subcontractor Factoring Misconceptions Guide [MS].
Factoring approval for subcontractors is based primarily on the creditworthiness of the general contractor or project owner responsible for paying the invoice not the subcontractor’s own balance sheet or credit history. This structure makes factoring accessible to subcontractors who may not qualify for traditional bank financing but work for financially strong general contractors.
New subcontracting businesses and growing operations frequently qualify because they are working for established contractors with solid payment histories.
Construction receivables involve documentation requirements that differ from standard commercial invoices progress billing approvals, lien waivers, and project verification are all part of the process. Factoring companies that regularly work with construction subcontractors understand these requirements and have systems designed to process construction documentation efficiently.
Programs also vary in how they handle retainage, whether selective factoring is allowed, and what additional services are included. Comparing several factoring companies before committing leads to better outcomes than selecting based on advertised rate alone.
For a structured approach to comparing factoring companies for subcontractors, review the Subcontractor How to Evaluate Guide [HE].
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