What is construction invoice finance?

Construction invoice finance is a form of invoice finance for contractors and subcontractors. It lets you borrow against money you are owed for completed work, often billed through an application for payment, instead of waiting for your customer to pay.

Can you get invoice finance against retentions?

Retentions are usually left out of the amount advanced, because the money is held back until the work is signed off. Some specialist providers offer retention finance, which advances against the held-back amount, but terms vary.

How does CIS affect invoice finance?

Under the Construction Industry Scheme, contractors deduct tax from payments to subcontractors, so the amount you receive is lower than the total billed. Providers usually base funding on the amount after deductions. Check how each provider treats this.

Construction invoice finance: how it works for contractors

The short answer

Construction invoice finance lets contractors and subcontractors borrow against money they are owed for work done, instead of waiting for payment.
Many contracts bill through applications for payment rather than standard invoices, so not every provider will fund them.
Retentions held back until a job is signed off are usually left out of the amount advanced.
CIS deductions and disputed sums reduce what you receive, so providers usually work from the amount after deductions.

Construction invoice finance helps contractors and subcontractors who finish work, bill for it, and then wait weeks or months to be paid while wages, materials and plant hire still have to be covered. It works in a similar way to standard invoice finance, but construction billing has features that change how it is set up.

Why construction is different

In many construction contracts, work is billed through applications for payment that are assessed and certified, rather than through a standard invoice. The amount you are finally paid can be lower than the amount applied for. Because of this, some invoice finance providers will not fund construction work at all, and others specialise in it.

Our guide to invoice factoring vs invoice discounting explains the two main ways invoice finance is arranged. Construction providers offer versions of both.

What providers look at

The contract and who you are working for. A strong main contractor or client helps.
Certified amounts. Funding is more often based on certified applications or agreed valuations than on work that has not yet been signed off.
Disputes and set-offs. Amounts in dispute, or that the customer may offset against other charges, are commonly excluded.
Retentions. Providers look at how much is held back and for how long.
Your track record. Previous jobs finished on time and paid on time help.

Retentions

Many construction contracts allow the customer to hold back a percentage of each payment as a retention until the work is complete or defects have been put right. Retentions are usually left out of the amount advanced. Some specialist providers offer retention finance, which advances against the held-back amount, but terms vary and it can cost more.

CIS deductions

Under the Construction Industry Scheme, contractors deduct tax from payments to subcontractors and pass it to HMRC. The rate depends on the subcontractor's status. Check the current rules and rates on GOV.UK. Because the deduction reduces the cash you receive, providers usually base funding on the amount after deductions.

Costs and things to check

Costs usually combine a service fee and a charge on the money you draw, plus any set-up, minimum or exit fees. Our guide to invoice factoring costs and fees breaks these down with an illustrative example.

Before you agree to anything, ask:

Does the provider fund applications for payment, or only invoices?
How are retentions, CIS deductions and disputed sums treated?
What is the total cost on a typical month, including every fee?
How long is the agreement, and what does it cost to leave early?

Getting help comparing

We're a commercial finance broker, not a lender. We introduce your business to the lenders on our panel, including invoice finance providers, so you can see your options without approaching each one yourself. It's free to check, and any fee is confirmed before you proceed. All funding is subject to eligibility and credit assessment.

You can check your options in a few minutes, with no obligation.

Common questions

What is construction invoice finance?: Construction invoice finance is a form of invoice finance for contractors and subcontractors. It lets you borrow against money you are owed for completed work, often billed through an application for payment, instead of waiting for your customer to pay.
What is an application for payment?: In many construction contracts, work is billed through an application for payment that is assessed and certified, rather than through a standard invoice. Some providers will fund against certified applications, and others only against invoices.
Can you get invoice finance against retentions?: Retentions are usually left out of the amount advanced, because the money is held back until the work is signed off. Some specialist providers offer retention finance, which advances against the held-back amount, but terms vary.
How does CIS affect invoice finance?: Under the Construction Industry Scheme, contractors deduct tax from payments to subcontractors, so the amount you receive is lower than the total billed. Providers usually base funding on the amount after deductions. Check how each provider treats this.

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This guide is general information for UK businesses. It is not financial advice, and business funding must be repaid. Kapitl Business Finance Limited is a commercial finance broker, not a lender; all funding is subject to eligibility and credit assessment.

Invoice finance for construction: how it works for contractors