Construction finance for stage payments and applications for payment

Construction finance for stage payments and applications for payment

Many companies in or around the building and construction industries will become involved in lengthy jobs that require finance for staged or interim payments, often alongside applications for payment.  This can be anything from a specialist concreting firm laying the foundations for a multi-storey car park to a painter and decorator carrying out a large commercial refurbishment.


Definition of a Stage Payment:

"The payment of an agreed amount when an agreed stage of the project has been completed, often on a monthly basis."

Definition of an Application for Payment:

"A written request for compensation, such as by a contractor to the owner of the project, for the work performed, goods delivered, or services rendered."

A key consideration with an application for payment is that the payment requested needs to be agreed by the customer prior to raising a VAT invoice.  This is often done by a site supervisor or quantity surveyor who can confirm the completion of the work stated on the application and 'sign-off' the application prior to invoice; it is at this stage that the application becomes certified.  This process can take anything from a few days to a few weeks. 


Uncertified applications can be funded by some invoice finance companies

It is not widely known but uncertified applications can be funded by some invoice finance companies.  This will provide funding considerably in advance of other lenders who may only fund the application once certified and others who will only fund the invoice once raised.  First Financial know the market and individual funders' attitudes to applications for payment; if you would like to fund uncertified applications we can help find the right lender for you.  Due to the complex nature of the contracts involved, JCT (provided by the Joint Contracts Tribunal) for example, there are a limited number of specialist lenders who have the expertise and understanding required to feel comfortable funding against such contracts.

Ordinarily a invoice factoring or invoice discounting facility will release around 85% of the value of any invoice once raised.  When a company deals in stage payments and applications for payment this is reduced to around 65%.  If design is also an element in the project then the percentage released from each invoice may reduce even further.  Though this reduced drawdown does not compare favourably with other industries that use invoice finance, it will often still provide more funding than many of the traditional methods of business finance, eg overdrafts and loans, especially in the current economic climate.

Confidential or Disclosed?

Funding via invoice finance for the building and construction industries can be done either on a confidential or disclosed basis, dependent upon your requirements.  Some companies will see a benefit in keeping their financial arrangements private.  Whilst for others this is not an important consideration as their customers or suppliers will be familiar with invoice finance and may well be using it themselves.

There are a wide and diverse range of invoice finance providers to choose from and it can be a time consuming exercise to find the lender that's right for you. First Financial can help you to identify those lenders with the expertise and product that fits your requirements and outline the capabilities of the lenders and their services prior to engaging directly with them, saving you valuable time and effort.

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