0845 643 9485
Call now for expert advice

Recently we were approached by a landscape gardener than needed assistance in raising some working capital. The family owned business has issues as they were working for the well known house builders. These clients would take a long time to pay and in the meantime they had to pay their workers weekly.

They had approached their own bank who were unable or unwilling to provide an overdraft facility. They referred them to their invoice finance arm who were unwilling to assist as the business was considered to be in the construction industry as they were required to submit applications for payment to the house builders like any other contractor. From there they had approached several independent invoice finance providers who were unwilling to help for the same reasons. The landscape gardener then approached us at Funding Solutions UK.

There is a real issue for businesses that form part of the construction sector, or in fact those that may be on the preiphery of the construction sector, to find suitable working capital facilities. The banks do not want to lend by way of an overdraft facility without tangible security and the invoice finance providers on the whole are unwilling to assist. There are however, some specialised construction factoring companies that specialise in factoring applications for payment but from experience the actual cash generated is extremely low (even lower than the headline rate issued), the administration of the facility can be extremely time consuming and the costs can be prohibitive especially when you consider the penalties they can impose for not meeting their administration requirements. These administration requirements can include the submission of bank statements weekly and the submission of management accounts by a certain date each month. If you miss a deadline you can incur hefty penalties.

We looked at several options including Bibby Construction. However, while Bibby Construction may have been willing to provide a facility with a prepayment of around 50-60% it was felt that the administration of the facility would have been too difficult for this small family owned business. We found a more conventional fatcoring facility with a 70% prepayment and none of the administration requirements that Bibby would have required and it was also a more cost effective solution.

The business was able to set this facility up quickly and it provided an ideal solution for their working capital requirement.

While these specialised ‘construction factoring’ providers offer a valuable service to part of the market I am not certain that they are the ideal solution for those on the edge of the construction industry. There seems to be lenders that will take a more traditional view on these types of businesses and are willing to offer more conventional, cost effective facilities that are easier to operate. Not only that, they tend to be cheaper and tend to generate far more cash.

When you are looking for a suitable cash flow solutions for your business it is important to take expert independent advice and to consider all your options. You must understand what cash the facility will generate and this means not only looking at the headline prepayment but also at what this prepayment is actually applied against.

Leave a Reply

[ Ctrl + Enter ]