Finance for the Construction Industry

By: Ron Mark

The construction industry concerns itself with the building of infrastructure on a site. Finance for the construction industry, plays a crucial role.

Why finance is so important to the construction industry
&bullThe raw materials are expensive. The materials utilized in the construction industry: steel, iron, cement, bricks, stone, concrete, glass, and heavy equipment like cranes, concrete mixers, etc., are all costly. To minimize costs, bulk purchases are made and sometimes cash payments are made to take advantage of discounts. This places a high demand on the businesses cash flow. Sometimes, for very large projects, finished blocks of the project are sold, in order to finance the completion of the other unfinished blocks. In such a situation, availing construction finance service from a financial institution proves to be very helpful.
&bullThe labor cost is immense. The highest cost in the construction industry is for labor. Skilled, semi-skilled, and daily wage labor, in large numbers, have to be employed for the timely execution of the project.

Labor costs drain the cash flow, and if proper financial planning is not in place at the time of placing the tender, then the construction company can face a very serious financial crisis. This situation can be transformed by taking construction finance from a financial company.
&bullThe bid may be an underbid. To win the project, an underbid may be placed, which subsequently demands a tight inventory control, and a tighter cash flow. The strain is enormous and any miscalculated move may result in losses. The situation can be alleviated by taking construction finance from a company that provides finance for the construction industry.
&bullClients may become bankrupt or insolvent. Sometimes, clients become insolvent and thus cannot honor invoices. To avoid such bad debts, many finance companies offer bad debt protection services. The finance companies take the risk of non-payment and charge a nominal fee for this service. Moreover, coupled with invoice discounting or factoring services, almost 70% of the invoice amount is immediately available for use. This improves the cash flow and can provide resources for further construction projects on other sites. With bad debt protection services, blocked cash is freed up, management time is saved, and peace of mind is achieved.
&bullExtra work is a rule rather than an exception. In the construction industry, clients expect extra work to be performed at minimum or no extra cost. Unless there is reasonable evidence to prove that the extra work has been performed, most likely, no payments will be made. This situation can be controlled by invoicing the client for the extra work, supported by reasonable evidence, and availing a construction finance service with debt protection service from a reputed finance company. The finance company releases about 70% of the payment immediately to improve the cash flow and chases the client for payment of the extra work performed. This results in peace of mind.

Finance
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Finance