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How Progress Claim Finance Works

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Most SMEs bill their clients in one lump sum once an order has been fulfilled or a service has been completed. However, others such as contractors bill clients on a milestone basis at different stages of a project. 

For the latter who invoice under a contractual agreement, cash flow can be an ongoing issue where business owners may have to wait 30, 60, 90 days or even longer to be paid. 

If you fall into this category, it’s important to understand your financing options and do whatever it takes to ensure you have the necessary capital to pay suppliers, pay employees and pump money back into your business. 

Progress claim finance can be an excellent solution for this.

What is Progress Claim Finance?

This is a type of invoice financing facility that’s specifically designed for business owners who engage in contractual-based working arrangements and raise progress claims under the Security of Payments Act. Some common types of occupations this applies to include electricians, plumbers, engineers and glaziers. 

This type of facility allows you to finance claims as they’re completed throughout the various stages of a working arrangement. Rather than waiting a lengthy period of time to receive your money, progress claim finance gives you access to it much more quickly, enabling you to pay business expenses and reinvest into your company.

How Does Progress Claim Finance Work?

It’s pretty straightforward. First, you send a copy of your monthly progress claims to a lender after you’ve sent them to your client. After receiving client payment schedules or a recipient created tax invoice, the lender will give you an advance of up to 70% of the value of the invoice within 24 hours. Once you receive your client’s payment in full, the lender gives you the remaining 30%, less a small fee. 

In terms of funding limits, you can get financing for claims up to $750,000. SMEs can use progress claim finance on an ongoing basis to receive capital for multiple invoices or as a once-off funding solution.

An Example

Say an electrician is working on an extensive project that will take 4 months to complete with a value of $400,000. Under the contract, progress claims can be made each month. 

With progress claim finance, the electrician could receive funds from the lender at the payment schedule frequency of once per month. Instead of waiting the full length of time for each invoice to be paid, they could get up to 70% of the money in advance and the remaining 30% once the invoice is paid in full.

Why It’s Beneficial

There are some major advantages to this type of facility. Here are five specific ways it can benefit business owners.

1. Quick Access to Capital

For starters, it’s a huge asset for SMEs who need quick cash injections to fuel business growth.

Let’s face it. Payment terms tend to favour larger companies, not contractors. Having to wait an extended period of time for each payment multiple times throughout the duration of a project can place a financial strain on contractors. In this scenario, you may find yourself behind and struggle to cover the critical business expenses that allow you to grow your company. 

Progress claim finance is helpful because you have much quicker access to your money, and you don’t have to wait nearly as long. Rather than waiting a month, two months or even longer to be paid for each invoice, you can get up to 70% of the money within 24 hours. This creates an opportunity for sustained growth and can also reduce a lot of the stress that comes along with waiting for slow or late paying clients.

2. No Need for Real Estate Security 

Unlike many other types of business loans from traditional banks that require you to put up your home or commercial property as security, this isn’t usually required with progress claim finance. Under this type of arrangement, outstanding receivables act as collateral, so that’s all you need. 

And this is huge for many business owners, given the low rate of home ownership in recent years. According to the Australian Bureau of Labor Statistics, home ownership declined from 67% in 2011 to 65% in 2016 — a record low.

Whether you don’t own a home or commercial property or just don’t want to have to deal with the stress of using it as security, progress claim finance provides a means of gaining access to capital without having to worry about real estate security.

3. High Funding Limits 

As we mentioned before, funding limits go as high as $1.5M in specific circumstances, which is a substantial amount of money for most businesses. Regardless of the type of contracting work you do and the specific industry you’re in, progress claim finance provides a framework where you can obtain a large amount of capital to keep your business moving in the right direction.

4. It’s a Flexible Facility 

And as we also mentioned, this facility can be used on either a revolving basis or as a once-off solution. If you’re in a situation where you continually need capital from a lender, you can get it. Or, if you only need it once or sporadically, a lender can supply you capital in this situation as well. It really just boils down to what your exact needs are, which gives you complete flexibility and control.

Also, note that progress claim finance can be used in addition to an existing invoice finance facility. So, if you’re already using a full service solution like debt factoring, you could use progress claim finance to generate even more capital and get the cash flow injections you need to accelerate business expansion.
 

5. It’s Often Easier to Get Than Financing From a Bank

Finally, most SMEs find it much easier to get this type of facility from a non-bank lender than getting a traditional business loan from a large bank. 

This is big considering the difficulty many SMEs are having trying to get financing from banks, which is creating cash flow concerns. “More than one in five business owners cite being rejected for a lending product as the main reason for their cash flow issues,” explains Scottish Pacific’s September 2019 SME Growth Index. “That is a significant number of Australian small businesses feeling the pinch in their day-to-day operations due to having a loan application rejected.”

Because non-bank lenders don’t have nearly as many restrictions and aren’t bound by government red tape like traditional banks, SMEs tend to have a much easier time getting financing from non-bank lenders.

Improving Cash Flow with Progress Claim Finance

Having adequate cash flow is vital for the growth and sustainability of all businesses. However, obtaining it is often easier said than done for the simple fact that outstanding invoices can take so long to be paid. It can be especially difficult for business owners with contractor type arrangements who receive payments at different phases of a project. 

Progress claim finance is a solution specifically designed for these SMEs and offers a simple, straightforward facility to facilitate growth. So, if you’re a contractor, and cash flow is something you’re consistently struggling with, it’s definitely a solution to consider.

 

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