What to Know About Invoice Factoring Costs for Construction

What Is Invoice Factoring and How Does It Work?

Invoice factoring is a cash flow solution where a third-party company (a factor) advances money based on your unpaid invoices. Instead of waiting weeks or months to get paid, you get most of that money up front, usually 80% to 90%. Once your client pays the invoice, the factor gives you the rest, minus a fee.

This is not a loan. You’re not taking on debt or making monthly repayments. You’re simply accessing the money you’ve already earned, faster.

Why construction firms love it:

It bridges the cash flow gap between billing and payment.
It helps you meet payroll and vendor obligations without borrowing.
It provides financial flexibility during busy seasons or unexpected delays.

Understanding the True Invoice Factoring Cost Construction Firms Can Expect

Factoring fees vary based on provider, contract terms, and your client’s payment history. But generally, you can expect:

Flat Rate Model

This is the simplest pricing structure. Depending on how long your client takes to pay, you’re charged a straightforward percentage of the invoice value, typically between 1% and 5%. For instance, you might pay 2% if the client pays in 30 days, but 4% if they take 60 days. It’s predictable and easy to budget for.

Tiered or Variable Rate

Instead of one fixed fee, this model adjusts based on the time it takes your customer to pay. You might start with a low base rate of 1.5%, but it increases each week or month until payment is received. This setup rewards fast-paying clients and ensures the factor is compensated for longer wait times.

What Influences the Fee?

Several factors play into the rate you’ll be quoted. Let’s break those down:

Invoice Volume

The more invoices you factor monthly, the better your negotiating power. Higher volumes often qualify for reduced rates.

Client Creditworthiness

Since the factor is repaid when your client pays, their financial reliability impacts your fee. The more trustworthy your clients, the lower the perceived risk, and the lower your cost.

Industry Risk

Construction can be complex. Factors to take into account include subcontractor involvement, milestone payments, and payment delays that can increase their risk. As a result, factoring rates in this industry may be slightly higher than for simpler B2B services.

The bottom line is that when evaluating invoice factoring costs, construction leaders should consider the fee and the financial agility it unlocks.

Know Before You Sign—Factoring Fees for Construction

When comparing factoring providers, transparency is everything. Some firms advertise low rates to grab attention, but the real cost can balloon with hidden fees. Here are a few to watch:

Setup Fees

These one-time onboarding costs cover the administrative effort of getting your account up and running. Some providers waive them, but others may charge hundreds of dollars. Ask before you commit.

ACH or Wire Transfer Fees

This is how the factor moves funds to your bank account. Different transfer methods come with different costs depending on how fast you want the funds. ACH is typically cheaper than wire transfers.

Monthly Minimums

Some contracts require you to factor a minimum dollar amount of invoices each month. If you fall short, you could face penalty fees. This is especially important for seasonal businesses.

Termination Fees

Want to leave the contract early? Some providers charge a fee for that, too. Be clear on the terms and try to negotiate flexibility upfront.

Reserve Holdbacks

The factor may withhold a small percentage of the invoice in reserve until your client pays. Occasionally, these reserves are delayed or come with additional fees to release. Make sure you understand how and when this money is returned.

Before signing on the dotted line, get a full breakdown of all associated costs and compare at least two or three providers. The cheapest rate on paper isn’t always the best value.

The Pros and Cons of Invoice Factoring

Like any financial tool, factoring isn’t one-size-fits-all. It can be a game-changer for many construction firms—but it’s not without considerations. Here’s a closer look at both sides.

Why Invoice Factoring May Be Worth It

Factoring could be your path to immediate, accessible funds. Here are the positives:

Fast Access to Cash

One of the biggest advantages is the speed at which you can access funds. Instead of waiting 60 or even 90 days for a client payment, factoring can get money in your hands within 24 to 48 hours. This rapid access is critical for staying on schedule, paying your crew, and ordering materials before a project stalls.

Payroll Consistency

Reliable payroll means a reliable team. Factoring lets you meet payroll obligations on time, even when client payments are dragging. This keeps your workforce satisfied and reduces turnover, an especially valuable benefit in today’s tight labor market.

Material and Equipment Readiness

You can’t build what you can’t buy. With faster cash flow, you’re able to purchase materials, reserve rental equipment, and take advantage of early-payment vendor discounts without hesitation.

Fueling Growth

Want to take on more or larger projects? Factoring gives you the confidence and liquidity to do just that. You don’t have to pass on an opportunity just because your working capital is tied up in unpaid invoices.

No Additional Debt

Unlike traditional loans, invoice factoring doesn’t put debt on your books. There are no monthly payments, no interest accrual, and no long-term liabilities affecting your balance sheet.

Invoice factoring is a business enabler. Round Table Financial offers transparent, flexible factoring tailored to construction firms.

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But What About the Downsides?

Invoice factoring isn’t free, and it’s not for everyone. Here are a few things to keep in mind.

The Cost Factor

Factoring fees, while usually reasonable, do impact your profit margin. Depending on the structure, you could pay between 1% and 5% of your invoice amount. That fee may sting upfront, but many contractors find that the ability to keep moving outweighs the cost.

Involving Your Clients

Because factoring involves your receivables, the factor may contact your clients for payment verification or remittance. For some companies, this can feel intrusive, though most reputable factors handle it professionally and discreetly.

Contractual Commitments

Some factoring agreements come with monthly minimums, lock-in periods, or early termination fees. Be sure to review all terms and choose a factoring partner that offers the flexibility your business needs.

Example Scenario: Cost vs. Impact

Let’s say you submit a $100,000 invoice and your factor offers 90% upfront at a 2% flat rate.

You receive $90,000 immediately.
Your client pays the invoice 45 days later.
The factor sends you the remaining $8,000 (after the $2,000 fee).

That $2,000 enabled you to:

Make payroll on time.
Buy materials in bulk (and get a vendor discount).
Win a new bid because you weren’t cash-strapped.

In context, the return on that $2,000 investment can far outweigh the upfront cost.

Short-Term vs. Long-Term Use

Not every construction firm needs factoring all year long—and that’s the beauty of it. Whether you’re navigating a sudden influx of projects or managing the early stages of growth, factoring can be tailored to meet your situation. Let’s explore how companies use it across different timelines:

Short-Term Factoring

Perfect for patching cash flow gaps caused by seasonal workload surges, delayed payments, or unforeseen expenses. Contractors often turn to factoring during peak construction months to ensure they can cover payroll, buy materials, and seize new project opportunities, without overextending themselves financially.

Long-Term Factoring

Long-term factoring can serve as a reliable financial backbone for firms operating in high-growth mode or dealing with clients who consistently delay payment. It offers ongoing liquidity supporting day-to-day operations and strategic expansion, helping firms scale sustainably while minimizing financial bottlenecks.

Factoring is not a rigid commitment. You can increase or decrease usage depending on project cycles, cash reserves, and overall business strategy, giving you the financial control that traditional funding methods rarely offer.

Build Smarter With Round Table Financial

Think invoice factoring is too expensive? Think again. With Round Table Financial, the invoice factoring costs construction companies face are crystal clear, competitively priced, and backed by deep industry knowledge.

We don’t just get you paid faster. We help you:

Meet payroll without stress.
Take on bigger, better contracts.
Build a more resilient, scalable business.

Ready to see if factoring fits your cash flow strategy? Contact us now and get a customized quote.

What You Need to Know Before Committing to Invoice Factoring Costs in Construction