Contractor invoices
The work is done and approved, but the money is two months away while payroll is every Friday. Here is how factoring and working capital each handle that gap, with the dates and the cost.
✓ Checking what you qualify for does not affect your credit score.
Updated October 13, 2026 · Merchant Fund Express
A commercial contractor or sub finishes work, invoices the general contractor and waits 60 days or more. Payroll, fuel and the next supplier bill do not wait. The question is which product turns the invoice into cash at the lowest real cost and the least friction with the customer.
| Invoice factoring | Working capital | |
|---|---|---|
| What is funded | Specific approved invoices | Your business as a whole, based on deposits |
| Who pays it back | Your customer pays the factor directly | You, through scheduled debits |
| Customer involvement | Customer is notified and pays a new remit-to address | None |
| Recourse | Usually recourse: if the customer does not pay, you buy the invoice back | Not tied to any invoice |
| Retainage | Not advanced; it is not payable yet | Not relevant |
| Fits best | Large, creditworthy GC customers and steady invoicing | Mixed customers, short gaps, or invoices a factor will not accept |
A commercial mechanical sub invoices a $120,000 progress billing on June 2 to a regional general contractor. Retainage is 10%, so $108,000 is payable, net 60, expected August 1.
| Factoring this invoice | Working capital | |
|---|---|---|
| Advance date | June 4 | June 4 |
| Cash received | $97,200 (90% of $108,000) | $90,000 lump sum |
| Fees | About 3% for 60 days: $3,240 | Cost set in the offer: total payback $106,200 |
| Paid back by | Customer pays factor Aug 1; you receive the $7,560 reserve back | Weekly debits from June 11 over about 6 months |
| Cost in dollars | $3,240 | $16,200 |
| If the GC pays late | Factor fees grow; with recourse you may buy back the invoice | Payments continue on schedule either way |
On one clean invoice, factoring is cheaper. Working capital costs more but covers payroll across every job and does not touch the customer relationship. The comparison flips when the GC is slow, disputes billings or will not accept a notice of assignment.
All figures in worked examples are illustrations of the arithmetic, not offers or quotes. Real terms depend on your file and the funder.
For working capital, test the weekly payment against your slowest month of deposits, not the month the big invoice lands. For factoring, assume the customer pays 30 days late and check the fees still leave margin on the job.
Read invoice factoring or our factoring guide for the mechanics, and funding for a slow-paying client if one customer is the issue. Contractors buying materials before the first bill should read materials before the job. When you have your statements and open invoice list, check what you qualify for. Construction products in general are on construction funding.
On a single clean invoice from a reliable customer, usually yes. Working capital costs more but is not tied to any one customer and does not notify them.
Usually yes. Most factors send a notice of assignment so the customer pays the factor directly.
Generally not until it is due and approved at closeout. Plan your cash without it.
If your customer does not pay the invoice within the agreed period, you buy it back from the factor. Most contractor factoring is recourse.
Sometimes, but most factoring agreements restrict new financing on receivables. Get the factor’s written consent first.
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