Invoice Factoring With Progress Billing in Construction
Progress billing in construction creates a unique factoring challenge. Here's how to factor draw requests effectively as a subcontractor.
Key Takeaways
- ✓Progress billing invoices (draw requests) can be factored after GC approval.
- ✓Retainage (typically 5%–10% of each draw) is not advanced and held until project completion.
- ✓Approval lag from GCs before factoring can be 2–4 weeks.
- ✓Joint check programs are the most efficient payment structure for construction factoring.
- ✓Conditional lien waivers protect both your lien rights and your factor's security interest.
How Progress Billing Works in Construction Factoring
Standard invoice factoring works on completed invoices—work is done, invoice is issued, invoice is funded. Construction progress billing is different:
1. You complete a phase of work (e.g., rough plumbing for floors 1–5)
2. You submit an Application for Payment (AIA G702/G703 or similar) to the GC
3. The GC reviews, potentially modifies, and approves the application
4. The approved amount becomes the invoice you can factor
The key difference: you cannot typically factor a progress billing invoice before the GC approves it. The factor needs a verified, approved draw request—not just your estimate of what you're owed.
The Retainage Problem
Retainage complicates construction factoring in an important way:
If your GC holds 10% retainage on every draw, and you have a $200,000 progress invoice:
- Invoiced amount: $200,000
- Retainage held (10%): $20,000
- Net payable on this draw: $180,000
Your factoring advance is based on the net payable amount ($180,000), not the face value ($200,000). The retainage ($20,000) is not advanced because it's not due yet—it's paid at substantial project completion.
On projects with 10% retainage, your effective factoring advance is limited to 90% of the invoiced work (less retainage) × the factoring advance rate.
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