Construction working capital: lines of credit and invoice factoring
Quick answer
Construction working capital is short-term financing that bridges the gap between doing the work and getting paid. The two main tools are a business line of credit, which you draw from and repay as needed, and invoice factoring, which advances cash against unpaid invoices within a day or two.
Factoring is approved on your customers' credit rather than yours, which makes it the standard fix for slow-paying general contractors and Net 30 to Net 90 terms.
There's a post that shows up on the contractor forums in some form every single week. "Net 30 is killing my cash flow. How does everyone deal with this?"
The replies are always the same mix of frustration and workarounds. And it makes sense, because this is the problem that sinks profitable construction companies.
You did the work. You paid your crew Friday and your supplier on delivery. But the GC won't release your payment for 45, 60, sometimes 90 days. The job made money on paper. Your bank account just doesn't know it yet.
Working capital financing fixes the timing, not the math. Here's how.
Key takeaways
- → Working capital solves a timing problem, not a profit problem — it turns money you've earned into cash you can use now.
- → Invoice factoring advances 80–90% of an invoice in 24–48 hours and is approved on your client's credit, not yours.
- → A line of credit is cheaper and reusable but needs stronger credit and steady revenue.
- → Tighter billing — prompt invoices, milestone draws, clear terms — shrinks the gap before financing ever fills it.
What is construction working capital?
Working capital is the cash you have on hand to run day-to-day operations. For a contractor that means making payroll, buying materials, and covering overhead between payments.
Working capital financing covers the gap when that cash runs short. It isn't for buying equipment or funding a ground-up build. It's for the week-to-week money that keeps the lights on and the crew on site.
The two products that do this best are invoice factoring and a business line of credit. They solve the same problem from different angles.
Why construction cash flow is so brutal
Construction has a worse cash conversion cycle than almost any other trade. You pay out early and collect late.
Materials get bought up front. Labor gets paid weekly. Then the invoice goes out, and payment terms stretch 30 to 90 days from there. Retainage holds back another 5 to 10% until the whole project closes.
Now grow that business. Win a contract twice the size, and you float twice the cash before the first dollar comes back. Growth makes the squeeze worse, not better.
That's why working capital tools matter more in construction than in most industries. The gap is structural.
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Working capital & cash-flow guides
Invoice factoring for contractors
Factoring is the most direct answer to slow payments. You sell an unpaid invoice to a factoring company and get most of its value now.
The mechanics are simple. The factor advances 80 to 90% of the invoice within 24 to 48 hours. When your client pays, the factor releases the rest, minus a fee of roughly 1 to 3%.
The part contractors underrate is whose credit matters. Factoring is approved on your customer's creditworthiness, not yours. If the GC pays their bills, your own score and time in business barely register.
That makes factoring the go-to for subs waiting on general contractors, and for anyone whose personal credit isn't where they want it. Just use a factor that knows construction — progress billing and retainage trip up generalist firms.
Business line of credit
A line of credit is a revolving pool of money you draw from when cash is tight and repay when clients pay. You only pay interest on what you actually use.
That structure fits recurring gaps better than a lump-sum loan. Draw $20,000 to cover payroll, repay it three weeks later when the draw clears, and the full line is available again for the next crunch.
It's cheaper than factoring per dollar borrowed. The trade-off is qualification — you'll need decent credit and steady revenue, usually with some months of history behind you.
Factoring vs line of credit
Most contractors ask which one to pick. The honest answer is that they do different jobs.
| Invoice factoring | Line of credit | |
|---|---|---|
| Speed | 24–48 hours | Same day to a few days |
| Approved on | Your client's credit | Your credit and revenue |
| Cost | Higher (1–3% per invoice) | Lower (interest on what you draw) |
| Best for | Slow-paying GCs, weak credit | Recurring gaps, stronger credit |
| Reusable | Per invoice | Revolving |
A lot of established contractors run both. The line covers routine swings, and factoring handles the one giant invoice that would blow past the line's limit. Our factoring vs line of credit comparison breaks down which to use when.
Surviving slow-paying clients
Financing fills the gap. Better billing shrinks it. Do both.
Invoice the day work is done, not at month-end. Every day you sit on an invoice is a day added to your wait.
Bill in milestones on bigger jobs so you're collecting throughout, not at the finish. Put your payment terms in writing and enforce them, including late fees.
And consider deposits on material-heavy work, so you're not the one financing someone else's project out of your own pocket.
When a payment runs late but a deadline can't, eBoost Partners offers bridge construction financing to carry costs until the money lands.
Payroll financing
Missing payroll is the one thing you cannot do. Lose your crew and you lose the schedule, the reputation, and the next job.
When a client's payment is late but Friday isn't moving, short-term working capital or a quick factoring advance keeps everyone paid and on site. It's expensive insurance, but cheaper than rebuilding a crew.
If the shortfall is part of a bigger funding need, a construction business loan may cover more ground than a one-off advance.
What it costs
Factoring runs a 1 to 3% fee per invoice, scaling with how long the client takes to pay. A line of credit charges interest only on the drawn balance, often in the low double digits annually for qualified borrowers.
The right way to judge cost is against the alternative. A 2% factor fee looks steep until you weigh it against a stalled job or a crew that walks. Used in the right spot, working capital is the cheapest money on the table.
For the lowest long-term rates on larger needs, an SBA 7(a) loan beats short-term working capital, though it takes far longer to fund.
Best working capital lenders for contractors
These lenders rate highest for construction cash flow, judged on funding speed, factoring expertise, and how well they understand progress billing. You can also compare several at once through eBoost's construction business financing, which quotes multiple lenders on one soft-pull application.
Best working capital and factoring lenders
Best Overall — Same-Day Funding Across Six Loan Types Ad
Best Line of Credit for Cash Flow
Best Invoice Factoring for Contractors
How to choose and apply
Start with the shape of your problem. A recurring monthly gap points to a line of credit. One big slow invoice points to factoring.
Have your recent bank statements and an accounts-receivable aging report ready — for factoring, the AR report is the main thing underwriters want to see.
Then compare a couple of offers. Factoring fees and advance rates vary widely, and the construction-savvy factors aren't always the cheapest on paper but are usually the easiest to work with.
Need other pieces of the puzzle too? Our guides to equipment financing and trade-specific financing cover the rest. When you're ready, pre-qualify with a soft credit pull — no impact to your score.