Quick answer
Most receivables funders decline construction, so the first question is not price but whether a funder finances progress billings at all. The ones that do will generally advance against the net of a certified pay application — retainage excluded — which means a quoted 85% advance is closer to 76.5% of what you billed. Compare funders on progress-billing capability, retainage treatment, how they read pay-when-paid and pay-if-paid clauses, lien-waiver mechanics and their experience on bonded work.
Key takeaways
- Ask first whether the funder finances progress billings. Many receivables funders exclude construction entirely, and the ones that say yes do not all mean the same thing.
- Retainage is normally ineligible, so an 85% advance against a pay application with 10% retainage is really 76.5% of the gross billing.
- Pay-if-paid clauses push owner credit risk onto you, and a funder that has not read your subcontract will price as though they have.
- Lien rights and conditional waivers interact with an assigned receivable; have counsel review the interaction before you sign either document.
- On bonded jobs the surety's position matters to the funder, and that conversation should happen before you need the money.
Does the funder actually finance progress billings?
Construction receivables are the hardest common category to finance, and plenty of otherwise capable funders simply decline the sector. The reason is structural rather than snobbery: a construction invoice is a claim on work in progress, subject to measurement, certification, retainage, back-charges, offsets against other jobs and a payment obligation that may be contingent on someone else being paid first. That is a very different risk object from a shipped pallet or a delivered load.
So the opening question is blunt: do you finance progress billings, and on how many active construction accounts? Then follow it with the qualifier that separates real capability from marketing. Do you fund against a certified pay application, and whose certification do you need — the general contractor's project manager, the owner's representative, the architect? Some funders will only fund completed-contract invoices, which for a subcontractor on a nine-month job is effectively no financing at all.
The distinction between a service-style construction invoice and a true progress billing is worth making explicit. A specialty contractor who mobilizes, works three days and bills a fixed amount is close to an ordinary service receivable. A subcontractor billing 22% completion on a schedule of values, with stored materials, change orders in dispute and 10% held back, is not. Be clear about which one you are, and be sure the funder is quoting on the same thing.
- 1Work is performed and measured. Ask how the funder expects completion to be evidenced — your own measurement, the GC's superintendent sign-off, photographs, stored-materials records — and whether stored materials are eligible at all.
- 2The pay application is prepared. Confirm the funder will work from your application and continuation sheet in its native form, with the schedule of values intact, rather than asking you to reissue it as a plain invoice.
- 3Certification and approval. Establish whose certification makes the billing eligible and what evidence of it they need. This is the step where funders differ most, and the one that sets your funding date each month.
- 4Retainage is stripped out. Check that the eligible balance is calculated net of retainage and any withholding, and ask the funder to show you the resulting effective advance rate against the gross application.
- 5The advance is released. Ask for the turnaround from certified application to funds, and what happens when the GC certifies a lower amount than you billed.
- 6Payment, waivers and reserve release. Pin down how you are told that payment arrived, when the unconditional waiver should be signed, and how quickly the reserve is released once the GC pays.
How is retainage treated, and what does that do to my real advance rate?
Retainage is the defining cash problem in subcontracting and the defining eligibility problem in construction factoring. Funders almost always exclude it, for a sensible reason: retainage is not reliably collectible until the job closes out, and closeout can be a year away and contingent on punch lists, as-builts, warranties and someone else's completion. An advance rate quoted against the eligible balance is therefore not an advance rate against your billing.
Do the conversion yourself for every quote. Multiply the advance rate by one minus the retainage percentage and you have the effective rate against your pay application. The difference is larger than most contractors expect.
A subcontractor on a $1.8 million contract submitting a monthly pay application, with 10% retainage and an 85% advance against the eligible balance, financed at 2% per 30 days and paid by the GC on day 60.
| Pay application for the period | $150,000 |
|---|---|
| Retainage withheld at 10% | -$15,000 |
| Net amount the GC will pay | $135,000 |
| Eligible for advance — retainage excluded | $135,000 |
| Advance at 85% of the eligible amount | $114,750 |
| Effective advance against the gross pay application | 76.5% |
| Fee at 2% per 30 days, collected on day 60 | $5,400 |
| Reserve released when the GC pays | $14,850 |
An 85% advance becomes 76.5% once 10% retainage comes out. Across the full $1.8 million contract, retainage is $180,000 of cash that sits unfunded until closeout — ask every funder whether they finance any portion of it, and if the answer is yes, ask to see that in the agreement rather than in the proposal.
Which capabilities should I score a construction funder on?
The table below is the practical version of the diligence. Work through it with each funder and pay particular attention to how quickly they reach for a document — a funder who asks to see your subcontract and your last pay application in the first conversation is underwriting the actual risk.
| Capability | Why it matters for a subcontractor | What a good answer looks like |
|---|---|---|
| Progress billing financed | A subcontractor on a long job cannot wait for a completed-contract invoice | Funding against a certified pay application each cycle, with a named certifying party and a stated turnaround |
| Retainage treatment stated in writing | It determines your effective advance rate and the size of the cash you must carry to closeout | Retainage excluded from eligibility but explicitly addressed, with any carve-out written into the agreement |
| AIA-style billing documentation | Most commercial work bills on a schedule of values with continuation sheets and stored-materials lines | The funder reads the application and continuation sheet directly and does not ask you to re-cut it as a plain invoice |
| Pay-when-paid versus pay-if-paid read | One is a timing clause, the other transfers owner credit risk to you — and to the funder | The funder asks for the subcontract, identifies the clause, and tells you how it changes advance rate or eligibility |
| Lien-waiver mechanics | Waivers are exchanged every cycle and interact with an assigned receivable | A defined process for conditional and unconditional waivers tied to funding events, and a recommendation that counsel review it |
| Bonded job experience | On bonded work the surety has an interest that sits alongside the funder's | The funder has dealt with sureties before, raises the subject unprompted, and knows an intercreditor conversation may be needed |
| Change-order handling | Unapproved change orders are a large share of a contractor's billed-but-contested balance | Only signed change orders are eligible, said plainly up front rather than discovered at the first decline |
| Back-charge and offset treatment | A GC can offset against your billing for cleanup, damage or schedule, which reduces the receivable after you funded it | A stated reserve policy and a process for resolving an offset rather than an immediate full clawback |
| Job-level reporting | You need funding, reserves and aging by job, not by customer | Reporting broken out by job and by pay application, reconcilable to your job-cost system |
| Notification approach with the GC | Your relationship with the general contractor is your most valuable asset | A professional notice process, a willingness to introduce themselves to GC accounting, and discretion about how it is framed |
Has the funder read my pay-when-paid or pay-if-paid clause?
Two clauses that look similar on the page behave completely differently in a financing. A pay-when-paid clause is generally understood as a timing provision: the general contractor will pay you after the owner pays, but the obligation to pay you exists. A pay-if-paid clause attempts to make the owner's payment a condition of the obligation itself, pushing owner credit risk down to you. Courts in different states treat these clauses very differently, and the drafting matters enormously, so this is an area for your attorney rather than for a factoring brochure.
What you are testing is whether the funder engages with it. A construction-capable funder asks for the subcontract early, finds the clause, and tells you plainly how it affects the deal — a lower advance rate, an eligibility carve-out, a requirement for information about the owner, or a decline. A funder who has not asked for the subcontract is pricing a receivable they have not read, and that gap tends to surface as a surprise clawback rather than as a lower rate.
It is reasonable to ask what they know about the owner and the project financing. On private work, the owner's ability to fund the project is the ultimate source of repayment, and an experienced construction funder will want to understand it. That curiosity is a good sign, not an intrusion.
How do lien rights, waivers and bonds interact with factoring?
Mechanics lien and bond claim rights are the subcontractor's principal security, and they sit alongside a factoring arrangement rather than being replaced by it. The mechanics vary substantially from state to state, the documents are technical, and the consequences of getting the sequence wrong are serious — so treat what follows as a description of the moving parts, not as legal advice, and have your construction attorney review any agreement before you sign it.
The practical questions for a funder are about process. Lien waivers are exchanged every billing cycle, usually a conditional waiver with the application and an unconditional waiver once payment is received. When the receivable is assigned, payment is received by the funder rather than by you, so the trigger for the unconditional waiver has to be defined and the funder has to confirm receipt promptly. A funder who has done this before will have a routine; one who has not will leave you signing unconditional waivers against money you have not been told arrived.
On bonded jobs there is a further party. A payment and performance bond gives the surety an interest in the contract and, in some circumstances, in the funds flowing through it. Funders experienced in construction raise this themselves, know that an intercreditor or acknowledgement conversation with the surety may be required, and will tell you to involve your bond agent early. Funders who have never worked a bonded job will tell you it makes no difference, which should end the conversation.
One more interaction is worth flagging. A factoring facility normally involves a UCC filing against your receivables. If you are seeking or maintaining bonding capacity, your surety will want to understand that filing. Tell your bond agent before you sign, not afterwards — a surprised surety is a slow surety.
What should I ask before I sign?
Bring your subcontract, your last pay application and your schedule of values to the conversation. Every question below is easier to answer honestly with the documents on the table.
- Do you finance progress billings, and how many active construction clients do you fund today?
- Will you fund against an AIA-style application and continuation sheet, or do you need a reformatted invoice?
- Is retainage excluded from eligibility, and under what circumstances would you finance any part of it?
- What is my effective advance rate against the gross pay application once retainage comes out?
- Have you read my subcontract, and how do you treat the pay-when-paid or pay-if-paid clause in it?
- Are unsigned change orders eligible, and what documentation makes a change order fundable?
- How do you handle a GC back-charge or offset applied after you have advanced?
- What is your process for conditional and unconditional lien waivers once payment comes to you instead of to me?
- Have you funded bonded work, and how do you handle the surety's position and any intercreditor requirement?
- Can you give me reporting by job and by pay application that reconciles to my job-cost system?
- How will you introduce yourself to my general contractor's accounting department?
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Written and reviewed by the National Invoice Factoring funding team — specialists in receivables and trade finance since 2009.
