It’s really common for us to receive enquiries from businesses who receive progress payments (not payment on invoice) looking for a cashflow solution like debtor finance, factoring or similar.
Trade and debtor finance are well established in the marketplace as legitimate lines of credit for those in a B2B environment and there’s now a sizeable number of lenders offering much more competitive rates than in years gone by. But an easy solution isn’t always available for those in the construction or construction related industries who rely on progress payments. Enter Progress Claims Finance.
Progress Claims Finance is tailor made to support businesses that invoice under a contractual arrangement. In addition to sub-contractors within building and construction this is often also relevant to plumbers, electricians, glaziers and engineers. It can even extend to those in IT.
How does it work?
Case Study: A contract is secured to provide 120 kitchens in a unit complex with a value of $1.2M. The contract allows for progress claims to be made each month when the subcontractor issues an Application for Payment and a Payment Schedule is issued by the head contractor. Progress Claims Finance would provide a line of credit up to the value of 70% of the Payment Schedule value.
If a contractor has multiple contracts, the limit of credit available is equivalent to all of the progress payments that are approved at any one time. The lender will allow the contractor to draw down on these funds to cover the cost of materials and labour and once payment is made it clears the balance.
This is a legitimate line of credit solution that does not require property as you have the line of credit secured against the value of your progress payments.
For those clients who have a debtor finance facility but also receive progress payments, both forms of finance can be utilised. There’s also insurance available to protect against bad debt.