It’s no secret that construction is seen as one of the most high-risk industries to fund.
Between 2011 and 2013, contractors had a 26 percent rate of failure, leaving behind thousands of unfinished projects. The root of the problem is cash flow and antiquated funding models. Contractors have relied heavily on loans and lines of credit to fund projects, making it tough to create sustainable business growth.
By learning more about how this industry has been held back for decades, and the modern funding solution that can give contractors the resources to create financially sustainable business practices, companies like CreditSuppliers aim to alleviate the woes of funding for contractors.
“CreditSuppliers’ financing is used specifically for permanent construction materials,” says George Kaouris, the company’s chief strategy officer. “When a contractor chooses to cover the costs of their materials with CreditSuppliers, it frees up their working capital to use elsewhere — whether that is hiring a new employee, starting a new project or purchasing new equipment.”
The Scottsdale-based company is the leading trade credit organization helping subcontractors grow their businesses, build strong relationships with suppliers and create healthy financial outlooks.
CreditSuppliers allows suppliers to focus on building relationships with customers instead of “being the bank.”
Working specifically for the commercial construction industry, the company doesn’t do business loans. Its model allows contractors to be more strategic with funds and invest their own money in business development.
“Commercial subcontractors can apply for funding on a project-by-project basis and CreditSuppliers will pay suppliers in full in 10 days or less,” explain Kaouris. “Subcontractors receive payment terms of up to 150 days with interest rates of 1.5 percent per month.”
Not waiting for payment is one of the biggest benefits to suppliers.
The biggest challenge, Kaouris says, “Contractors look for additional funding in trade credit from suppliers, factors, business credit cards and business loans, all of which can be difficult to obtain due to the dislocation of payment cycles in construction projects.”
CreditSuppliers’ solution is to deepen contractors’ pockets.
“Unlike banks and credit card companies, we understand the typical construction payment cycle and build strong relationships with suppliers,” adds Kauris. “We see beyond the ‘high-risk’ label and provide the right financing to help contractors to be more successful.”
More challenges
- Cash flow is the largest barrier to subcontractors bidding on big jobs.
- The payment cycle for the construction industry involves multiple parties and can become confusing because the construction industry often relies on a pay-when-paid model.
- Subcontractors look for additional funding in trade credit from suppliers, factoring, business credit cards and business loans, all of which can be tough to get due to the unorthodox payment cycle for construction projects.
- Banks and credit card companies have a limited understanding of the construction industry. This can create issues when it comes time to draw funds for a project, and certainly does not create ample opportunity to focus on business development.
- Subcontractors are considered high-risk borrowers by traditional funding sources due to the nature of the construction payment cycle.
CreditSuppliers’ Solutions
- Deepens contractors’ pockets – By covering the cost of supplies, CreditSuppliers frees up capital for subcontractors to invest in their business.
- Enhances purchasing and negotiating power – Subcontractors have reported negotiating up to a seven percent discount when using CreditSuppliers.
- Improves relationships with suppliers – CreditSuppliers’ reliable and straightforward payments help subcontractors strengthen supplier relationships and open doors to new relationships.
- Suppliers benefit with decreased day sales outstanding (DSO). DSO represents the average number of days it takes to collect revenue after a sale has been made.
