A high-street factor will fund a haulier's sales ledger on a Friday and decline a groundworks contractor with the same turnover on the Monday. The turnover is not the problem. The problem is that a construction debtor is not a clean invoice — it is an application for payment, valued by someone else, payable net of retention, and exposed to a set-off the funder cannot see coming. Most generalist invoice-finance providers underwrite construction by declining it. A smaller group has built products specifically around how construction actually gets paid, and they are the ones worth approaching.
What the mainstream factor is actually objecting to
Start with the document. In most sectors the invoice is the debt. In construction the contractor submits an application for payment, and what becomes legally due is the notified sum under the payment regime in the Housing Grants, Construction and Regeneration Act 1996. The employer can issue a payment notice or a pay less notice stating a lower figure, and unless they fail to serve it in time, the certified sum — not the applied-for sum — is what gets paid. A generalist factor advancing 90% against the application has just lent against a number that an employer's quantity surveyor can mark down next week.
Then there is the contra-charge. Main contractors routinely deduct against a subcontractor's account for backcharges, defective work, attendance, or materials supplied on site. These deductions land after the invoice is raised and reduce the cash that ever reaches the funder's control account. A factor's whole model depends on a debt being worth roughly what the ledger says. Construction debts are not, and the dilution is unpredictable.
Add the structural worries on top:
- Retention. Around 5% of each interim valuation is withheld, half released at practical completion and the balance after the defects liability period — often twelve months, and up to twenty-four on residential work. That slice sits outside what most funders will advance against at all, because it is uncollectible if the contractor above goes under.
- Pay-when-paid memory. Section 113 made conditional payment clauses ineffective except on insolvency, but the insolvency carve-out is exactly the scenario a funder fears, so the lingering chain risk still shapes how cautiously they price.
- Final-account uncertainty. A project's true value is not settled until the final account is agreed, sometimes long after the last application. The "debt" keeps moving.
None of these are reasons the sector is uninvestable. They are reasons it cannot be underwritten on a generalist factoring template.
How specialist construction funders get comfortable
The funders who lend into this — the construction-finance desks within the larger independents and a handful of dedicated specialists — do three things differently.
First, they fund the application for payment as a receivable in its own right, not as if it were a clean invoice. They will advance against certified and, in some cases, uncertified applications, but they discount the advance to reflect that the certified figure can land below the applied-for figure. Where a sales-ledger factor might advance up to 90%, a construction facility is typically struck lower against applications, with headroom held back deliberately for the markdown and the contra risk. The advance rate is the funder pricing the very uncertainty the generalist refused to price at all.
Second, they underwrite the contract and the main contractor, not just the borrower. The credit decision turns on who sits above the borrower in the chain, the form of contract (a JCT or NEC payment schedule reads very differently from a bespoke one), and the contra history on that account. A specialist will ask to see the payment certificates and the application history before agreeing an advance rate — because that history is the real collateral.
Third, they ring-fence retention separately. Good facilities treat the retention book as a distinct line, often with a much lower advance against it or none at all, rather than letting it inflate the headline ledger. That is the honest version of the invoice finance structure for this sector, and it is why a specialist quote can look less generous than a generalist's on paper while actually funding more of what is collectible.
When invoice finance is the wrong tool entirely
A facility built on applications for payment funds the gap between doing the work and being certified for it. It does not solve a balance-sheet that is over-geared on plant, and it does not bridge a two-year retention release. For a contractor whose tied-up capital is the yellow kit rather than the ledger, asset finance or sale-and-leaseback releases far more cash than discounting a thin, contra-exposed ledger ever will. For a business with value across debtors, stock and plant at once, an asset-based lending structure can wrap all three into one revolving line and lend deeper than single-product invoice finance against a sector this volatile.
The practical point for a finance director: the funders that decline construction are not telling you the sector is unfundable. They are telling you they only have one template. Bedrock places construction working-capital files with the desks that have built more than one, and matches the structure to where the cash is actually trapped — applications, retention, or plant. The decision tree for that sits on the construction sector page, and it starts by asking which of those three is choking the cash cycle, not by assuming a factor is the answer.