For construction companies in Australia, labour hire can mean intense cash flow pressure.
Whilst staff may need to be paid weekly or fortnightly, revenue from issued client invoices may only come through after 30, 60 or even 90-day terms. So how do you fund staff before client payouts arrive?
At ScotPac, our Invoice Finance solution can do just that.
Learn more about Invoice Finance from ScotPac.
Why Do Construction Labour Hire Businesses Experience Cash Flow Gaps?
The cash flow gap arises from the misaligned need for construction businesses to pay their staff according to their regular payroll cycle and the longer time needed to recoup outstanding money from clients.
In Australia, it is not unusual for payment terms to stretch to 90 days, and sometimes even 120 days.
This means that there is a long time between your construction company issuing an invoice and your business receiving payment. Whilst long payment terms ensure strong client relationships, this lack of timing can create urgent cash flow shortages.
As payroll demands intensify the issue and remembering that labour hire costs include not just wages but payroll tax, superannuation, and insurances, delayed cash inflow can force some construction business owners to dip into savings or reject new contracts.
At ScotPac, we support over 9,300 businesses including in the construction industry and fund $26.3 billion in invoices annually. With Invoice Finance, construction labour hire can be funded by unlocking the otherwise tied up working capital.
How Does Invoice Finance Help Fund Staff Payroll in Construction Labour Hire?
Invoice Finance provides a cash advance for construction businesses thereby unlocking the working capital in the unpaid invoices sitting with their clients.
- Businesses submit their invoices to ScotPac
- Receive up to 85% of the value of the invoices upfront
- Receive the outstanding amount upon client payment minus requisite fees.
What is an Invoice Finance facility secured against?
Invoice Finance, unlike other forms of capital funding, utilises the value of the unpaid invoices being submitted as collateral. In other words, you and your business do not need to put up property as security.
Can Invoice Finance be used to fund staff payroll?
Yes, it can.
Another difference between Invoice Finance and other traditional forms of finance, such as bank loans, is that there are no fixed repayments. Your facility can scale as your invoices grow in value. Moreover, you can time your financing to ensure it aligns with your payroll and construction labour hire needs.
What Are the Key Benefits of Using Invoice Finance for Construction Labour Hire Cash Flow?
In essence, invoice finance delivers fast, flexible funding tailored to your business’s labour hire needs.
Control Payment Timing
If your cash inflow and outflow present tricky timing for funding payroll, you can use Invoice Finance to cover wages, including super, before your client settles their invoice.
Scale as you Grow
Your Invoice Finance facility limit is based on your submitted invoices. As your business expands and sales grow, so can your facility – up to $200 million.
No Asset Risk
By using the invoices your clients have yet to pay as collateral, you can preserve equity and assets for further business investment.
Maintain Client Relationships
With the pressure on your cash flow alleviated, you can continue to offer strong payment terms to your clients and promote flexibility in future construction contracts.
Invoice Finance vs Traditional Funding: Which Is Best for Construction Labour Hire?
Whilst Invoice Finance is becoming an increasingly popular working capital solution for construction companies to fund their labour hire, it is important to understand the different features between it and a traditional funding arrangement, such as bank overdraft or lump-sum loan.
Invoice Finance Provides Faster Funding
With Invoice Finance, you can access your cash advance within 24 hours of submission whereas a bank overdraft or new loan can take weeks to apply and get set up.
Invoice Finance Can Scale
As explained above, Invoice Finance scales with your construction company. A bank overdraft and loan both offer fixed limits and further funding will require new applications.
Invoice Finance Offers Flexible Repayment
With Invoice Finance, as your clients pay you receive the balance of the working capital owed to you less applicable fees. With traditional working capital solutions, you are often locked into regular and fixed interest and/or instalments to repay the loan.
Invoice Finance Is a Sustainable Cash Flow Solution
Both bank overdrafts and traditional loans can be useful for construction companies. An overdraft facility can provide a short-term bridge to manage gaps in cash flow and loans are constructive for one-off investments or purchases. Invoice Finance offers a cash flow positive, long term solution to your construction labour hire needs.
How to Qualify for Invoice Finance as a Construction Labour Hire Business in Australia?
If you are not sure whether your business is eligible for Invoice Finance, here is a handy checklist:
- Do you extend invoices to business clients and sell services on standard trade credit terms?
- Can you demonstrate at least six months’ worth of consistent invoicing and collections?
- Are your clients creditworthy Australian businesses with a reliable payment history?
If you answered yes to all of the above, you may be eligible to for Invoice Finance with ScotPac.
