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• 07 Dec

  Factoring CIS Invoices In The Construction Sector

  

  This article focuses on construction financing for contractors in specific situations. For a broader explanation of construction finance, including how funding works, eligibility, typical structures, and how to obtain quotes, see our main construction finance page.

  Construction is a difficult sector to secure invoice financing as it can be fraught with contractual obligations, which are the bane of any factoring company's life. Factors tend to finance simple "sell and forget" sectors, so only a few will take on the issues associated with providing construction finance.

  In a recent case, we were able to find factoring for CIS invoices for a recruitment company that needed funding against some CIS invoices to debtors in the construction sector.

  Construction Industry Scheme - CIS

  The Construction Industry Scheme (CIS) is operated by the UK government. It requires that some contractors deduct money from their payments to sub-contractors and pass it to HMRC. The sub-contractors can deduct these payments from their tax bills; however, the scheme exists to ensure that taxes are paid.

  Fortunately, our client had other aspects to their business, including sales to other sectors. This diluted the proportion of the sales ledger that CIS invoices represented.

  Funding Rapid Growth

  This particular client had some rapid expansion plans. Their annual sales turnover was predicted to increase almost 7-fold over the next year. This level of growth will cause cash flow problems for most businesses. The company in question already had a white-label invoice financing facility in place. However, this was going to prove very expensive if they achieved their growth ambitions.

  Lower Cost Expansion Finance

  Therefore, they came to us to find them lower-cost expansion finance that could accommodate funding against their CIS invoices. Although the field of funders that will deal with CIS is narrow, we were able to introduce them to a specialist funder who could help. They were able to accommodate the rapid rise in their funding requirements and accept and fund the CIS invoices. The factoring company were able to construct a factoring facility with a prepayment percentage that would account for the CIS invoices, and meet their funding needs.

  By Glenn Blackman