Construction invoice finance funds a receivable that is not really an invoice. It is an application for payment against a valuation, subject to retention, certification, set-off for defects and often a payment chain reaching back to somebody who has not been paid either. Funders that take the sector price all of that; funders that do not, decline it, and a quote from one who has not asked about any of it is a quote that will change.
Retention is the number that shapes the facility
Five per cent retention held for a twelve-month defects period means five per cent of everything you invoice is earned and unavailable, and almost no facility advances against it because it is contingent on work nobody has asked for yet. For a subcontractor at typical margins that is most of the profit sitting in somebody else's account. Model the facility against the certified value less retention rather than against your invoiced total, because the difference is exactly the gap the facility was supposed to close.
Certification, disputes and set-off
An ordinary invoice is a fixed amount owed. An application for payment is a proposal that a certifier may reduce, that a main contractor may set off against alleged defects, and that may be contested after the funder has already advanced. Funders manage that with lower advance rates against uncertified applications, with a close look at your dispute history, and by asking for the contract rather than taking your description of it. Expect all three, and treat a funder that asks for none of them as one who has not understood the ledger.
The alternative worth pricing beside it
A construction business with heavy plant often does better financing the plant than the ledger. Refinancing machinery you already own releases cash without touching customer relationships, contract terms or retention, and it prices at ordinary equipment rates rather than at a construction premium. Six lenders in this record keep a live equipment page and three publish a minimum on it. Price both routes for the same amount of cash and compare the totals, because they can differ by more than the choice of funder does.
Questions people ask about construction invoice finance
Will a funder advance against retention?
Almost never in a standard facility, because retention is contingent on future obligations rather than owed now. Specialist arrangements to fund retention near the end of a defects period exist and are priced accordingly; they should not be assumed in a cash-flow model.
Can I fund uncertified applications for payment?
Some specialist construction funders will, usually at a lower advance rate than a certified one. A general funder that agrees without distinguishing between certified and uncertified has probably not read the contract, and the terms will change when it does.
Does a pay-when-paid clause stop me using invoice finance?
It does not stop you, and it changes what you are selling: the funder is now exposed to a party further up the chain it cannot assess. Expect a lower advance, a higher price, or both, and expect to be asked for the contract.