Key Takeaways
- Progress claim financing helps construction companies get funding that is tied up in progress claim invoices.
- It gives you working capital right away and improves cash flow while you’re waiting for customers to pay invoices.
- You can use the funds to pay for wages, supplies, and equipment.
- The repayment of any funds drawn occurs when your customer pays the invoice.
- The application process will require financials, your current aged payables and receivables, your ATO portals, your last two BAS, and two example invoices (one from each of your two biggest customers).
Cash flow can be one of the hardest challenges for contractors and subcontractors to deal with. Businesses can run out of working capital even when projects are going well if clients don’t pay on time. Progress claims financing lets construction companies get funds from unpaid progress claims, which means they can get cash that would be stuck until the client pays the invoice. This article will explain how progress claim financing works, how repayments are set up, and why it has become an important credit solution for contractors all over Australia.
What is Progress Claim Financing?
Progress claim financing is a type of funding that is meant for the construction industry. It lets contractors borrow against the value of their certified progress claims, which gives them access to cash sooner than they would normally.
Payments for construction projects are usually made in stages. At agreed upon milestones, contractors submit progress claims, which the client or head contractor reviews, certifies, and pays. But these payments are often late, with terms that last from 30 to 60 days or even longer. As they are waiting, you still have to pay staff, subcontractors, and suppliers. Progress claim financing bridges this gap.
Why Progress Claim Financing is Important in Australian Construction
Construction projects usually have long payment cycles, plenty of stakeholders involved, and high costs up front. If contractors and subcontractors have to wait months for payments, this can create a shortage of working capital. Progress claim financing solves these problems by:
- Giving a steady flow of cash
- Making sure suppliers get paid on time
- Helping businesses pay their employees on time
- Helping businesses grow in a field with a lot of competition
A lot of operators would have a hard time staying in business during long payment cycles without this kind of funding.
How Does Progress Claims Finance Work in Australian Construction?
Here’s how progress claims funding works:
Step 1: Submitting a Progress Claim
The contractor submits a progress claim for completed work to the client.
Step 2: Certification of the Claim
Once approved, it becomes a certified progress claim and is scheduled for payment.
Step 3: Applying for Progress Claim Financing
Instead of waiting for payment, you submit your invoice to your lender.
Step 4: Funding is Released
Your lender advances a percentage of the claim amount. Typically, you receive up to 80% of the certified claim within 24 hours.
Step 5: Repayment of Finance
When your customer pays the progress claim in full this clears the amount owing and the balance is received in your bank account minus lender fees and interest.
Benefits of Progress Claim Financing
Progress claim financing offers several advantages for contractors and subcontractors working in construction:
Improved Cash Flow
The best thing is that you can get working capital right away. You don’t have to wait for customers to pay to cover your expenses.
Project Continuity
You can keep projects on track by getting funding early, allowing you to pay suppliers, workers, and subcontractors without any problems.
Flexibility
You can use the funds for a lot of different things, like paying for equipment, wages, insurance, and other costs.
Growth Opportunities
Progress claims finance can allow you to take on more work without the fear of running out of cash.
Reduced Financial Stress
You can get funds directly tied to their certified claims instead of relying on expensive unsecured loans.
How Contractors Access Cash Through Progress Claim Financing
Accessing cash through progress claim finance is straightforward once you have a facility setup. You upload your invoice and funds are typically paid into your account within 24 hours.
How is Progress Claim Finance Repaid?
Repayment of progress claim finance is directly linked to your customer’s payment of the claim. Here’s how it works:
- Once your customer pays the invoice, funds are directed to the lender.
- The lender deducts their fees and any interest owed.
- The remaining balance is passed on to the contractor.
How to Apply for Progress Claim Finance?
Applying for progress claim financing in Australia generally involves a straightforward process:
- Apply Quickly Online: Fill out our online form in minutes and we’ll get back to you with an assessment.
- Submit Documentation: Provide the required documentation and we’ll assess the right solution for your business.
- Assessment and Approval: Once you agree on a lender and solution, we submit your application for you.
- Receive Funds: Once approved, you can upload invoices anytime from the day of settlement and unlock the cash from your progress claims.
Comparing Progress Claim Financing with Other Finance Options
Contractors often compare progress claim financing with other funding options, such as:
Invoice Finance
Businesses in many different fields can use invoice finance to borrow funds against unpaid invoices. Progress claim financing, on the other hand, is made just for construction and focuses on certified claims.
Business Loans
Traditional loans give you a lump sum of funds, but you have to make regular repayments from cash flow and they’re not typically as good a working capital solution as a revolving credit limit like Progress Claims Finance.
Overdrafts and Lines of Credit
Overdrafts give you flexible funding, but unsecured overdrafts typically won’t offer the limits big enough needed by civil and commercial construction businesses.
Common Questions About Progress Claim Financing
How does progress claim financing differ from standard invoice finance?
Invoice finance is not compatible with progress claims invoicing due to set off clauses, liquidated damages and retention clauses that might delay payment. Progress claims finance on the other hand takes these clauses into account and is specially designed for the construction industry.
Is progress claim financing available for all contractors?
Lenders have a preference for funding progress claims for work completed on government infrastructure and from tier 1 and 2 contractors. Sub contractors working on other work may not have access to progress claims finance due to the risk of non payment.
What percentage of the claim can I access?
Typically, lenders advance 80% of the certified claim.
Final Thoughts
Progress claims finance can improve cash flow and working capital for commercial and civil construction businesses. If you’re growing your business a progress claims facility can support you from running out of cash, meaning you can tender for more work with confidence.
Disclaimer: Loans and their accompanying benefits are available only to those who qualify for them and have been approved. Though we put a lot of care into writing this article, the information presented within is general and doesn’t consider your unique situation. It is not meant to serve as a substitute for professional advice, and you should not rely on it solely for any major financial decisions. You should always consult with a professional when you’re dealing with finance, tax, and accounting matters.
Keep Your Projects On Track With Progress Claim Finance
Dark Horse Financial specialises in financial solutions for the construction industry. If you need help unlocking cash, contact our team today to learn your options.
