Businesses in the construction sector face a number of unique challenges due to the nature and complexity of construction projects. Raw material costs can fluctuate, with extended payment terms of up to 120 days not uncommon, government and European legislation is continually updated, and multiple layers of contracts and sub-contractors create complexity.
Funding construction firms is considered one of the more challenging tasks in the world of finance, but solutions are available.
Construction finance releases the lion’s share of the value of the project immediately, so only a small proportion will be left to be paid on 120 days when the project has finished. For businesses keen to tender for the larger contracts or seeking to gain a competitive advantage by investing in diversifying skills or targeting niche areas of work, having access to working capital is essential. Invoice finance packages can be used to pay for the initial outlay of the materials, equipment and labour needed or specific machinery, which de-risks the project and smooths cash flow.
As well as clear cash flow benefits, construction finance facilities has other benefits, including enabling a company to better manage seasonal fluctuations in demand, to buy new machinery on a hire purchase basis (which means the revenue generated from machinery over its lifespan fund its purchase), to release working capital for materials, equipment and labour on new contracts without placing further pressure on cashflow, and it also enables the company to recruit employees with specialist skills and to fund diversification of services.
However, there are a myriad of options offered by lenders, so it is really important the business seeks advice from specialists who have deep experience of construction, who can guide them through one of the most critical business funding decisions they will ever make