Contract financing refers to funding that relies on the execution of a contract between you and your customer. Instead of utilizing your business’s credit record, this financing method advances cash based on your customer’s creditworthiness and the stipulated terms of the contract.
How Does Contract Financing Work?
Contract financing pays you a specific amount of money for invoices sent to customers, allowing you to get funds instantly rather than waiting for months to receive customer payments. The balance is offset once customers clear the total invoice amount. Unlike numerous factoring methods that offer cash advancement based on finished projects, contract funding solely provides funds on an interim basis to businesses that work on a contractual basis to provide services or products for defined projects and events.
Majority of businesses that use contract finances either have poor or low credit scores that may not allow them to take traditional commercial lines of credit or bank loans. Due to this, eligibility for contract funding generally relies on the following:
Proof of a signed contract that details a schedule of payments and milestones
Customers with good credit rating
A proven record you can accomplish each milestone listed in the contract and complete the work on time.
Qualifying For Contract Funding
Among the most common qualification standards when seeking contract funding include:
Credit rating of customers: To qualify for a cash advance of up to 90%, your financing company will need proof that your customers have enough creditworthiness to pay their invoices within the required time.
Duration of business: If your company has been in operation for a considerable period, you stand a higher chance of getting financing. Despite this, your business needs to be clear of issues such as defaults and lawsuits.
Monthly billing: Your monthly billing will also play a role in how much financing your lenders offer. Due to this, your monthly revenues should be close to the amount of contract financing you are after. Keep in mind that some financing firms may also require a minimum billing amount that limits the amount advanced to businesses.
To get customized contract financing to help you accelerate business growth, consider reaching out to KPI today.