Construction is a wait-to-get-paid business. Subcontractors buy materials and pay crews as the work happens, then bill the general contractor or developer and wait 30, 60, or 90 days — with a slice held back as retainage until the whole project closes out. Construction factoring exists to close that gap. This guide explains how it works and how the industry's quirks — progress billing, retainage, and lien rights — are handled.
How construction factoring works
You issue an approved progress billing to the GC or owner, and instead of waiting for payment, you sell that receivable to a factor. The factor advances a percentage of the invoice — typically 80 to 90 percent for construction — usually within a business day, then collects from the GC on the normal terms. When the GC pays, you receive the remainder minus the factor's fee. Approval rides mainly on the creditworthiness of the GC or developer, not your own credit.
Why the advance rate is lower than other industries
Construction advances are usually lower than freight or staffing factoring because construction receivables carry more risk: pay-when-paid clauses, potential back-charges and offsets, disputes over completed work, and retainage. Factors price for that reality, which is why 80 to 90 percent is typical rather than the 90-plus you see in trucking.
How retainage is handled
Retainage — the portion the owner holds until project completion — is generally not advanced at the time of the original progress billing, because it is not yet payable. It is typically funded when it is billed and approved for release at closeout. A good factoring arrangement is structured around each project's retainage schedule so it does not come as a surprise.
Lien rights and waivers
Construction receivables come with mechanic's lien rights, and factoring works alongside them. Funders handle the assignment of invoices and the lien-waiver exchange that GCs require with each payment application. Keeping preliminary notices and waivers clean protects both you and the factor and keeps advances moving.
Is factoring right for your construction business?
Factoring fits contractors and subs whose main problem is funding payroll and materials while GCs pay slowly — especially those growing faster than their cash can support. If instead you need a one-time lump sum, revenue-based funding may fit. Y Millennial Funding offers construction factoring and revenue-based funding for contractors doing $50,000 or more in monthly revenue. Factoring is the purchase of receivables, not a loan. Not all applicants qualify.