No matter what form of funding you seek for your small business, you’ll likely need to provide tax information to secure the money. Invoice funding
Ask a contractor in the construction industry, and they’ll likely say the most difficult challenge in their trade is cash flow management. According to PwC, the average construction invoice takes a staggering 83 days to get paid. That figure is among the largest in the world for any industry.
Still, the industry continues to hum along in an era of low-interest rates, changing demographics, greater innovation, and increasing home and commercial demand. In the summer of 2020, the economy of Austin, Texas will handle the broader downturn from COVID-19 well. People have been moving to Texas from across the United States to take advantage of the culture, the warm weather, and the tax advantages. These trends have helped fuel a long real estate boom.
Contractors who weren’t landing jobs in Austin could largely blame one factor: Cash flow.
However, innovation in business funding can ensure that construction suppliers and small businesses can boost their cash flow in as little as 24 hours using one simple tool: Their outstanding customer invoices.
5Fort Contractors is an Austin-based commercial and residential construction company. Its bread-and-butter services center on drywall and painting.
For more than a decade, this Austin-based contracting company faced “Business As Usual” when it came to slow-paying customers and invoicing. Its founder Dax Castro says that slow-paying customers are simply part of the culture in the Austin construction business.
Though the culture is punctual on keeping project deadlines, the industry doesn’t carry the reputation for the same on getting contractors and subcontractors paid quickly. Long delays, tight credit markets, and late payments prevent many companies like 5Fort Contractors from reaching their full potential.
Companies across North America like 5Fort Contractors need money upfront to start projects, purchase supplies, and hire employees.
“Guys won’t wait to get paid, neither will drywall suppliers,” Dax said. He also adds that labor won’t want more than one week for payment, heightening the challenge to always have capital on hand to employ the best staff possible.
As noted, managing cash flow is the single biggest challenge in the commercial and residential construction market.
There are three key factors that stand out to Dax about the state of the construction business and how they can impact the cash flow of his business.
- First, as he noted, the culture doesn’t facilitate a quick response when it comes to payments. However, Austin’s market isn’t unique to late-paying clients, as evidenced in the PwC report.
- Second, Dax notes that larger commercial suppliers can take their time to pay smaller contractors simply because they are bigger. Dax says that the culture favors large commercial customers over the smaller players. “In the commercial business, they’ll try to get away with taking as long as possible to pay the little guys. It’s because they can. Besides, what can I do?” His options are not that strong when it comes to taking on bigger customers. He could place liens on these bigger customers or go to court. But he notes that by the time a settlement is reached – minus court costs – he could end up losing money in the end or have to settle for pennies on the dollar.
- Third, the size of Dax’s company creates a new set of challenges when it comes to traditional funding. Dax’s company also generates about $100,000 per month in revenue and is trying to expand his business. However, banks will not provide significant loans, and it makes little sense to take on debt or give up equity in his company.
It’s not like Dax isn’t a savvy business owner. He’d completed so many of the best practices when it comes to managing cash flow. He’d managed payroll challenges, paid bills on time, budgeted properly, and didn’t take on large amounts of debt that would cost him money.
He needed something that could cut down on the AMOUNT OF TIME it took to get paid.
Dax notes that banks are extremely stingy when it comes to entrepreneurs.
“Business owners are the guys who have the worst credit,” he said. “They take all their investments and make sure business is going. They’re the last one to get paid.”
While searching for innovative ways to boost his cash flow, he discovered FundThrough and its new invoice factoring product, Velocity. Using Velocity invoice factoring, Dax can exchange outstanding customer invoices for the working capital he needs to launch any new project.
FundThrough also enables Dax to get the money he needs to “focus on getting through payroll” without having to dip into his own personal savings and impact his home life.
And instead of waiting weeks for payment, Dax has created a streamlined process of procuring working capital, materials, and labor with the help of FundThrough.
When Dax is commissioned for a drywall and painting project, he requests a deposit from the construction client. As this generates an invoice, he signs into his QuickBooks account and sends the invoice to FundThrough, which approves the payment and processes the money to his business account.
As soon as he receives his materials, he completes a job, he generates an invoice and sends it to Velocity, and receives payment within 24 hours. FundThrough then works with his customer to obtain payment according to the terms of the invoice. In essence, FundThrough does “the waiting part” for him.
That brings Dax greater peace of mind when it comes to running his small business.
“I didn’t have money this easily available, I don’t know what I’d do,” he said. “I don’t know how I’d pay my guys, my suppliers, my vendors, and for supplies.”
Today, Dax invests in other businesses like real estate, construction ventures, flooring systems, and more. And he’s able to get the peace of mind knowing that his contracting business won’t interfere with those passions or force him to reallocate money elsewhere to that business.
“There’s nothing like today’s money,” he says. “It’s way better than tomorrow’s money.”
To learn more about how you can get your outstanding invoices paid, learn more at FundThrough.com.
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