Accounts Receivable and Payroll Funding –Construction and Real Estate Related Accounts
Steve Capper – Flexible Funding - July 17, 2017
The cash available from payroll funding or factoring companies, and the timing of when it is available, is partially determined by customer payments and collections. If you are a staffing agency with clients in the building industry, real estate improvement and repair, or suppliers to any of these industries it is
likely that you experience customer payment problems. Getting paid can be difficult because these accounts are always waiting to get paid by all of their building/construction industry related accounts. Your customer is just one negatively affected link in the chain.
Contractors and subcontractors frequently underbid projects. Buildings are extremely expensive requiring a large investment of capital; banks usually won’t help contractors or subcontractors and there are low investment funds for future contracts. Operators don’t have the resources to handle more than a few projects at the same time or even more than one project at a time. So they often delay paying staffing agency creditors and hobble with limited resources from job to job. Lastly, there are cost overruns, weather delays, and time delays when the architect and client change plans along the way.
All of the above can cause a staffing agency a shortage of cash due to late pays. It may not help that a funding company funds your staffing agency’s receivables because payroll funding companies may completely reject these accounts based on credit, put a credit limit on any customer, or remove them from borrowing availability after a specified “days outstanding.”
Your collections toolbox should include the names of factors or lenders that specialize in the building /construction industry and its related manufacturers and suppliers. If at all possible, your nonpaying customer should get factored by these specialists so they can turn around and pay you. In some cases, their willingness to get financing to pay you can give you a true indication of their intentions, or their plan to just utilize you as a bank. Have the names of some construction factors ready and know their minimum volumes, advance rates, and whether they can deal with tax liens. Most building industry factors will only fund in certain states so learn where the customer and building projects are located and if the factor will work deals there. If you don’t want to do any legwork, you might suggest a factoring broker to locate a specialist for them.
Specialists in construction factoring know how to deal with bonding/surety companies which may have a secured interest ahead of lenders. They commonly know how to work in different states with different lien laws and bonding issues, including ones that protect unpaid labor and suppliers in contracts pertaining to the improvement of real estate. They may also have access to credit collection services with historical databases of credit information on contractors.
The following are three case studies of collection problems where a staffing agency could have gotten paid if one prior link in the chain had used a factor:
- A staffing agency supplied electricians to a general contractor. The contractor, who underbid terribly, went bankrupt and did not pay the staffing agency. The company who provided the surety bond went legal, contesting payments owed to the staffing agency. Surety/bonding providers have legal resources to wear down various parties with a fight and disturb payments until settled. Earlier funding by a factor may have gotten the staffing agency paid.
- A builder underbid on a project and then used temporary personnel to finish up the project. He came to the end of a job, and had to get started on a new job. Instead of paying the staffing agency he just used the money for the second job.
- A staffing provider bid for a project. They cut him a purchase order, but there were no other agreements signed. He started on the project and burned through the purchase order amount but the job was not finished. The staffing agency claimed that people were to be paid hourly. The builder said the billings were by the job, punch list, or project. There was no absolute proof that the job was completed and many time sheets weren’t signed because there was often nobody at the job site to sign off for the job. The builder then had to complete the job that the staffing agency did not and refused to pay the staffing agency’s invoices.
If you are not in general labor or skilled labor don’t assume you are protected from slow pays or non pays in this industry. Or, that a staffing payroll funding company will cover you for all of these problems. Almost any staffing agency can be an adversely affected link in the chain of related industries including:
Cable companies, Utilities, Drywall, Cell Towers, Electrical, Fire Sprinkler, Flooring, Heating Ventilating and Air Conditioning, Paving, Plumbing, Roofing, Security Firms, Steel Fabricators, Tile/Asphalt /Concrete, Underground Utilities, Appraisers, Architects, Engineers, Inspectors, Excavators, and materials suppliers to the real estate and building industry