Why is construction factoring harder than other factoring?
Construction receivables are harder to factor because a progress billing is not a finished sale: the owner can dispute work, withhold retainage, back-charge for defects, or pay only when the GC gets paid. A funder buying that invoice inherits all of it.
Lien rights complicate it further. Your right to file a mechanic’s lien, and the lien waivers you sign to get paid, sit on top of the receivable. A funder needs to know a waiver is not signed away before cash arrives, and that a lower-tier supplier will not file a claim that stalls payment.
None of this makes subcontractor factoring rare. It makes it specialized. Many general-purpose factors decline construction outright, while construction-focused funders lend against it every day, at lower advance rates and with tighter paperwork.
How does retainage affect how much I can get?
Retainage is excluded from the advance. If a pay app is approved for $200,000 with 10% retainage, the funder advances against the $180,000 actually payable, not the gross amount. At an 80% advance, that is $144,000.
Retainage itself is difficult to finance because payment depends on project completion, punch lists and closeout documents that can drag on for months. Some funders will purchase retainage receivables once the project reaches substantial completion and the owner has confirmed the amount, but usually at a lower advance and higher fee. Treat "retainage financing" as a case-by-case product, not a standing line.
On Florida public projects, the prompt payment statutes for public construction cap how much retainage the public owner may hold, and the cap was lowered for newer contracts, so older jobs may follow a different schedule. Check the retainage clause on each public job and confirm the current limit with counsel. Private project retainage is set by contract. Know your number on every job before you talk to a funder.
| Line | Amount | Note |
|---|---|---|
| Approved pay app (gross) | $200,000 | Per GC-approved schedule of values |
| Less retainage at 10% | –$20,000 | Held until completion; not advanced |
| Net payable now | $180,000 | The factorable amount |
| Advance at 80% | $144,000 | Funded within days of verification |
| Reserve | $36,000 | Released when the GC pays, minus fees |
What documents do construction funders require?
Construction funders require proof that each billing is approved, that you have kept your lower tiers paid, and that the contract does not bar assignment. Expect to send more paper than a distributor or staffing firm would.
- Subcontract agreements, including payment terms, retainage and any pay-when-paid or pay-if-paid language
- Approved pay applications (for example AIA G702/G703 or the GC’s own format) signed by the GC
- Schedule of values and change order log, with approved versus pending change orders separated
- Conditional and unconditional lien waivers issued and received, by job
- Supplier and lower-tier sub payment status; any joint check agreements
- Payment and performance bond information on bonded projects
- Work-in-progress (WIP) schedule showing percent complete, billings and costs
- Insurance certificates, license and any open claims or disputes
Separate approved change orders from pending ones before you apply. Funders will not advance on unapproved change orders, and a mixed schedule slows verification on every job.
Do bonded and public projects get better terms?
Generally yes. Run your job-by-job numbers through the cash gap calculator first, then look at payer quality. On federal projects above the Miller Act threshold, and on state and local public projects covered by Little Miller Act statutes such as Florida Statute 255.05, the GC posts a payment bond. That bond gives an unpaid subcontractor a claim against the surety, which strengthens the receivable a funder is buying.
Private projects with a creditworthy GC and owner can be just as fundable, and most subcontractors start with a standard invoice factoring facility limited to their strongest GCs. The projects that struggle are owner-direct residential work, single-asset developers with thin capital, and subcontracts with strict pay-if-paid clauses where the sub’s right to payment depends on the owner paying the GC.
Which subcontractors qualify for construction factoring?
Trade subcontractors with commercial, industrial or public work and a track record of approved pay apps qualify most easily. Think electrical, mechanical, plumbing, concrete, steel erection, drywall, roofing, site work, fire protection and low-voltage.
- Commercial, industrial, institutional or public projects (not single-family homeowner work)
- Billing a GC or public owner with solid payment history
- Approved pay apps in hand, not just percent-complete estimates
- Suppliers and lower-tier subs current, or a plan to pay them from the advance
- No existing lender with a blanket lien that refuses to subordinate
- Monthly progress billings large enough for a $50K+ facility
How do joint checks and lien waivers work inside a factoring facility?
Joint checks and lien waivers are handled through the funder’s verification and remittance process. If a supplier requires joint checks, the funder will typically be named or will coordinate with the GC so the supplier gets paid and the funder still collects its share. Do not sign a joint check agreement after closing without telling the funder.
On waivers, most funders require you to issue only conditional waivers until payment is received, and to route unconditional waivers through them or after their confirmation. That protects both of you. If your GC demands unconditional waivers before payment, raise it early; it may limit which jobs can be funded.
Already juggling an incumbent factor or a bank that just cut your line? See switching factoring companies or bank called my line.
Illustrative scenario
Electrical sub caught between payroll and a 75-day GC
A Tampa Bay electrical subcontractor billing about $350,000 a month across five commercial jobs is waiting 60 to 75 days on two GCs. Retainage of 10% is building on every job, and the bank declined to increase a $200,000 line.
- Facility of $750,000 limited to approved pay apps from three creditworthy GCs
- Advance of 80% on net-of-retainage approved billings
- Conditional lien waivers only until funds clear; funder confirms each pay app with the GC
- Jobs with pay-if-paid language or unapproved change orders excluded from the borrowing base
- Bank line refinanced and the bank’s UCC released at closing
Outcome: The sub funds payroll and materials weekly instead of waiting on GC check runs. Retainage still comes in at closeout, but it no longer dictates whether the company can take the next job.
A composite example for illustration, not a specific client, offer or promise of terms.
Questions people ask
What is a typical advance rate for construction factoring?
Construction factoring typically advances 70% to 85% of the approved, net-of-retainage amount of a pay application. It runs lower than other industries because progress billings carry dispute, back-charge and lien risk.
Can I factor retainage?
Sometimes. A few funders will purchase retainage once the project reaches substantial completion and the GC or owner confirms the amount, usually at a lower advance and higher fee. Retainage is rarely part of a standing borrowing base.
Do funders factor residential construction?
Rarely for homeowner-direct work. Residential receivables are often consumer obligations and carry lien and dispute complications most funders avoid. Subcontractors billing a production builder or multifamily GC are more fundable.
Does a pay-when-paid clause stop me from factoring?
Not necessarily. Pay-when-paid clauses usually affect timing, while pay-if-paid clauses can shift the risk of owner nonpayment to you. Funders read the clause, the GC’s credit and the owner’s funding before deciding.
Will the GC have to sign anything?
Usually the GC receives a notice of assignment directing payment to the funder, and the funder verifies pay apps directly. Some funders also ask the GC to acknowledge the notice. Many GCs handle this routinely.
How long does it take to set up construction factoring?
Commonly two to four weeks, because the funder reviews subcontracts, pay apps and lien waivers job by job. A tidy WIP schedule and organized waivers can shorten that meaningfully.