Construction Factoring for Contractors and Subcontractors

Construction is one of the hardest businesses on working capital. You pay for labor, materials, equipment rental and subcontractors as the work happens, then bill on a schedule of values and wait for the owner or prime to approve and pay each application. Retainage holds back part of what you have earned until much later.

One slow progress payment ripples through the whole job: subs go unpaid, suppliers tighten terms, and the next phase stalls. Construction factoring keeps cash moving so the schedule doesn't depend on someone else's accounts payable.

Construction invoice factoring turns an approved progress billing into cash now. With Encore it works like this:

• Apply. Share your contracts, recent pay applications and an accounts-receivable aging report. You'll hear back within 24 hours.
• Onboard. Encore reviews the contracts, the paying party and any bonds, and files the paperwork that redirects payment. Most clients onboard in two to three weeks.
• Bill as usual. Submit each progress invoice to the agency, owner or prime on your normal schedule.
• Get your advance. Once your account is active, each approved invoice is funded the same or next day, at 80 to 90% of its value.
• Get the balance. When the payer remits, Encore releases the remaining balance to you, less the fee.

Federal construction contracts follow specific payment rules, and a construction factoring partner needs to work inside them:

• Progress payments are due 14 days after the designated office receives a proper payment request, and the final payment 30 days after acceptance (FAR 52.232-27).
• Primes must pay their subcontractors within 7 days of receiving payment from the government for that work (FAR 52.232-27).
• Retainage may be withheld from progress payments to protect the government, generally not more than 10%, and should be released when it is no longer needed (FAR 32.103, FAR 52.232-5).
• Miller Act bonds: federal construction contracts over $150,000 require performance and payment bonds (40 U.S.C. 3131 to 3134, FAR 28.102-1).
• Assignment of claims: to redirect federal payments to a funding partner, notice goes to the contracting officer, the disbursing office and the surety. See the Assignment of Claims Act guide.

Subcontractors carry the longest wait. You are paid after the prime is paid, often on pay-when-paid or pay-if-paid terms, and the prime may hold its own retainage on top of the owner's.

Factoring for construction subcontractors underwrites the prime that pays you. On federal work, the 7-day flow-down in FAR 52.232-27 helps predictability, and a funding partner that understands joint checks, lien waivers and surety consents keeps the arrangement clean with the prime and the bonding company.

A bank line of credit is sized to your financial statements and stays fixed until the bank raises it. Progress payment financing through factoring is sized to your approved billings, so it grows as you win and bill more work.

Many contractors keep a bank line for equipment and short gaps and use factoring for the receivables that scale with each new award. Check that your bank's lien and your surety's requirements allow both. See factoring vs. a line of credit for a full comparison.

The fee is a percentage of each invoice funded, and it depends on your volume, how long the payer takes, retainage, bonding and the customer's payment strength. Federal and well-rated primes generally price better than small private owners.

See construction factoring rates for what drives the rate and a worked example, or estimate an invoice with the factoring rate calculator. Encore quotes pricing within 24 hours of an application.

General contractors and specialty trades on federal, state and commercial work: site work and utilities, electrical, mechanical, roofing, facilities maintenance and design-build teams. If you bill an agency, an owner or a prime on progress terms, you likely qualify.

Encore brings 30+ years of specialty finance experience and $35B+ in total funding provided, collects in your name, and offers back-office support so your team can stay focused on the job. See how one contractor used it in the construction progress payments case study.