One of the greatest challenges of running a roofing company is that most clients and general contractors pay their invoices in 30 to 60 days. Having a delay this long can be a problem for roofers, since they cannot afford to wait up to 8 weeks for payment. Most roofing companies do not have a cash reserve or line of credit that allows them to cover expenses while waiting for customer payments.
The inability to cover expenses leaves roofers in a hard situation. They are juggling payments, trying to meet all their commitments. But it is hard to juggle payments for a long period of time. You will end up missing a supplier payment or payroll which is much worse.
Early-payment discounts provide client financing
An early-payment discount works by offering clients a discount if they pay the invoice in 10 days or less. Discounts are negotiable, but most companies offer around 2%. If possible, get the early-payment discount agreement in writing, this will help avoid potential problems.
While offering a discount for an early payment can improve your cash flow, success is not guaranteed. It is optional to make early payments and clients choose to either pay early or slowly based on their own cash flow.
Discounts are a great way to improve your working capital.
Use factoring for slow-paying invoices
A better option for many roofing contractors is to finance slow-paying invoices. This helps improve your immediately, providing immediate access to working capital. Funds can be used to pay construction suppliers, employees, or start new projects.
There is a special financing you can use called construction receivables factoring to finance your invoices. This solution works by financing your invoices in two installments. The first installment covers up to 80% of the invoice and is deposited to your account as soon as you issue the invoice.
The second installment covers the remaining funds and is deposited to your account when your client pays the invoice. The finance fee is deducted from the second installment.
Qualifications for financing
You must meet the following criteria to qualify for financing:
- Your invoices should be payable by a creditworthy general contractor or commercial client
- The work or work segment should be completed
- Your invoices should be payable in up to 60 days
- You invoices should not be encumbered by liens
- You must be a direct contractor or subcontractor for general contractor
Advantages for roofers
The main advantage for a roofing company is that qualifying for factoring is easier than getting . Having good credit is the most important criteria to qualify. This type of financing allows you to use your client’s credit to your advantage.
Another benefit of factoring is that the line is flexible and can be increased easily, as long as your invoices meeting the criteria for funding. This is important because it can help your company when you want a larger project.
Select the right lender
It can be challenging for roofing companies to find the right factoring because they often work with both direct commercial clients and with general contractors.
Conventional factoring companies may be able to finance your commercial client invoices, but they will not be able to finance your GC invoices. General contractors often provide progress payments and have contracts with “pay-when-paid”. Most roofers need to work with a company that can finance both types of invoices.
When interviewing a construction factor, ask the following questions:
- How long have they been in business?
- Do they work with general contractors?
- Are they comfortable with progress payment invoices?
- How do they handle “paid-when-paid” clauses?
The Bottom Line
Running a roofing company is not easy because it can take several days for contractors to pay their invoices. However, there are options available for you to get the funds you need so that you can maintain your business while waiting to receive the invoice.