Vendors First Blog

Why Invoice Factoring Is Harder on Construction Companies Than Almost Any Other Trade

The Vendors First Team — Wed, 08 Jul 2026 14:31:38 GMT

If you run a construction business — general contractor, subcontractor, electrician, plumber, concrete crew, HVAC shop — and you've looked into invoice factoring to smooth out cash flow, you've probably noticed something: the deal you're offered doesn't look like the deal a trucking company or staffing agency gets. That's not an accident, and it's not because construction companies are worse credit risks. It's because construction payment mechanics break several of the basic assumptions factoring is built on. Here's what's actually going on.

1. Retainage Locks Up Part of Every Invoice — Permanently, Until Closeout

Owners and general contractors typically hold back 5–10% of every progress billing until the project wraps up or gets final acceptance. That retained money isn't just slow to arrive — most factors won't advance against it at all, because it's contingent on final sign-off, not a fixed, collectible amount.

What this means in practice: even a "fully factored" invoice never gets you full liquidity. A real slice of your contract value — money you've already earned — stays locked up until the job closes out, on top of whatever the factor holds back as its own reserve.

2. You'll Get a Lower Advance Than Almost Any Other Industry

Trucking and staffing companies often see 90–97% of an invoice advanced upfront. Construction? Typically 60–85% of approved progress billings — and that's before retainage gets carved out. Stack the two together, and a meaningful chunk of what you've billed simply isn't accessible when you need it.

3. Construction Carries the Highest Factoring Fees of Any Common Industry

Fee ranges for construction factoring commonly run 2–5% per 30 days — among the highest of any factored industry, versus 1–2% for lower-risk sectors like staffing or trucking. And because construction payment cycles routinely stretch 60–75+ days or longer, that fee compounds under a tiered structure in a way shorter-cycle industries never experience.

4. Your Money Runs Through a Chain, Not a Single Payer

Payment in construction typically flows owner → GC → subcontractor → supplier. A factor isn't just betting on one company's reliability — it's betting on an entire chain holding together. That's exactly why many general factoring companies won't touch construction invoices at all, and why the ones that do often price and structure the deal around the creditworthiness of the GC or owner above you, not your own business.

5. Paperwork and Lien Waivers Become a Job in Themselves

Factors that work in construction usually want progress billings submitted in a specific format (AIA G702/G703 is the industry standard) and typically require lien waiver documentation before funding. That's real administrative overhead most trades in other industries simply don't carry.

6. Payment Bonds Add a Legal Layer on Public Jobs

If you're working a bonded public project, you have bond claim rights in addition to — or instead of — mechanic's lien rights if you don't get paid. Factoring your receivables doesn't erase those rights, but assigning them to a factor can complicate how a bond claim gets handled. This is worth a conversation with a construction attorney who knows your state's bond claim rules before you factor a bonded job.

7. Not Every GC Wants to Deal With a Factor

In freight or staffing, notifying the payer that a factor now owns the invoice is routine — nobody blinks. In construction, some GCs have payment policies that actively push back on it. That means the conversation with your GC about factoring may need to happen before you submit your first invoice, not after.

8. Joint Check Agreements Complicate the Picture Further

Construction often uses joint checks — a GC pays a check made out to both the sub and a supplier or factor — as an alternative to a straight assignment. This has to be explicitly worked out in your factoring agreement, because it changes who actually controls the funds and when they land in your account.

9. Disputes Are Built Into the Nature of the Work

Change orders, percentage-complete disagreements, and quality holdbacks are just part of how construction billing works — they're not unusual events the way they'd be in staffing, where the invoice reflects work that's already confirmed done. Under a recourse factoring agreement, a disputed invoice means you may have to buy it back — which hits your cash flow at exactly the moment a dispute is already straining it.

The Bottom Line

None of these problems make construction factoring impossible — specialist construction factors exist and this is a normal financing tool in the industry. But taken together, they mean the headline fee percentage badly understates the real cost and friction: lower advances, permanently locked-up retainage, a multi-party payment chain, legal complexity from liens and bonds, and paperwork most other trades never deal with. If you're comparing a factoring quote against what a trucking company or staffing agency pays, you're not comparing apples to apples — construction is structurally the harder, more expensive case, and it's worth going in with eyes open about why.

How Vendors First Approaches This Differently

Vendors First is built around a flat 5% fee with funding delivered within 72 hours, rather than the tiered, escalating fee schedules that make construction factoring especially expensive the longer a GC or owner takes to pay. For a contractor dealing with the multi-party payment chain and long cycles described above, a fee that doesn't climb the longer an invoice sits outstanding removes one of the biggest cost variables in construction factoring specifically. That said, two claims worth confirming directly with Vendors First before relying on them: whether their model funds 100% of invoice value (versus a partial advance with a held reserve), and what their underwriting actually looks at for approval — their public materials describe the flat fee and 72-hour turnaround clearly, but don't spell out advance-rate or credit-check specifics, so it's worth getting those in writing, along with how they handle retainage, recourse, and GC notice-of-assignment before signing anything.

Vendors First Joins Associated Builders and Contractors of Southern California Sponsors Member Tailgate at Angel Stadium

The Vendors First Team — Wed, 08 Jul 2026 08:26:01 GMT

FOR IMMEDIATE RELEASE

Ontario, CA — July 7, 2026 — Vendors First today announced it has joined the Associated Builders and Contractors of Southern California (ABC SoCal) as a new member. The company marked its entry into the chapter by sponsoring ABC SoCal's Tailgate & Baseball Game event, held Saturday, June 27, 2026, at Angel Stadium in Anaheim, where members and guests gathered for a pre-game tailgate ahead of the Angels' matchup.

The event brought together ABC SoCal members, contractors, and industry partners for an afternoon of networking and community building, followed by the ballgame. As a sponsor, Vendors First had the opportunity to connect directly with chapter members and introduce its platform to the broader ABC SoCal community.

“We're proud to become part of the ABC Southern California chapter and to have kicked things off by sponsoring an event that brings members together,” said David Dallenbach, CEO of Vendors First. “ABC SoCal's mission aligns closely with our own commitment to supporting the contractors and vendors who keep this industry moving.”

Vendors First looks forward to promoting the growth and sustainability of all ABC members through its continued membership and involvement in future chapter events, programs, and initiatives.

About Vendors First

Vendors First is a government vendor finance company that helps small and medium-sized businesses win government contracts, manage cash flow, and access capital. Its offerings include fast invoice funding, a digital wallet, and other financial tools designed to help vendors get paid faster, take on larger contracts, and grow their business. The company's California office is located in Ontario, California. For more information, visit vendorsfirst.club.

About Associated Builders and Contractors of Southern California

ABC SoCal is a trade association representing merit shop contractors, subcontractors, suppliers, and industry professionals throughout the Southern California construction industry. For more information, visit www.abcsocal.org.

Media Contact:

Brent Galbreath

Senior Managing Director

Vendors First

Brentg@vendorsfirst.club

The Procurement System Is Broken

The Vendors First Team — Tue, 07 Jul 2026 19:14:35 GMT

— And Small to Medium Vendors Are Paying the Price

The pitch is straightforward: win a government contract, deliver quality services, get paid reliably. For small businesses and nonprofits, a city or county contract is supposed to represent stability — steady, mission-aligned work backed by the fiscal strength of a public institution.

The reality, for most vendors in most jurisdictions, is very different. And the gap between that promise and that reality is widening.

Contracts That Start Before They Exist

In the world of municipal contracting, it is entirely normal — and in some cities the overwhelming rule — for vendors to begin performing work before their contracts are legally finalized. This isn't a loophole. It's a structural flaw baked into procurement processes that move far more slowly than the services they are meant to fund.

In Philadelphia, a sweeping 2025 study found that over the prior five years, 90% of professional services contracts were registered after their start date — with more than a quarter delayed by five months or longer. These are not edge cases. They represent $3.4 billion in city spending per year flowing through a system that routinely puts vendors in the position of performing work they cannot yet legally be paid for.

In New York City, the situation is similarly entrenched. Contract registration — the step that makes a contract legally effective and allows payment to begin — was late 90% of the time for human services organizations in FY2024, up from 88% the year before. As of early 2025, more than 2,500 contracts valued at $4.6 billion were awaiting registration even though their start dates had already passed.

The Administrative Machinery of Delay

Understanding why this happens requires looking inside the procurement machine. The causes are not primarily malicious — they are systemic. Bureaucratic approval chains require sign-offs from multiple levels. Budget modifications, even minor ones, can stop payment entirely. When line items in a contract budget change — a rent increase, a cost-of-living adjustment for staff — the entire contract can be frozen while a modification works its way through the system.

New York City's comptroller found that 85% of active human services contracts with approved budgets had been modified at least once in a recent fiscal year, and that each modification contributed substantially to payment delays. Understaffed procurement offices compound the problem: the NYC Council found that a 33% budget cut to the Mayor's Office of Contract Services — eliminating 14 staff positions — had measurably worsened payment timelines across the city.

Paper-based systems add another layer. Many municipal AP departments still process invoices manually, relying on physical checks and paper-based approval workflows that slow payments by days or weeks at every step.

Who Suffers Most

The vendors least equipped to weather these delays are often the ones most embedded in essential service delivery: small nonprofits running violence prevention programs, community health clinics, housing counselors, youth development organizations. These organizations typically have thin reserves, no access to traditional business credit, and zero ability to pause services while waiting for payment. They serve constituents — often the most vulnerable — who have nowhere else to turn if the program shuts down.

These organizations are, in practice, financing public services with borrowed money while city governments hold the funds that were appropriated for exactly this purpose.

"When nonprofits cannot make payroll, are behind on their rents, and take out loans because the City is consistently late to pay, we are ultimately letting down New Yorkers who rely on these organizations," NYC Comptroller Brad Lander wrote in a 2025 report that launched audits of the three city agencies with the worst payment records.

What Reform Looks Like

Cities and counties that have confronted this problem head-on have found that the solutions, while not simple, are achievable.

Philadelphia's researchers identified a single structural change — allowing multi-year contracts rather than requiring annual re-registration — that could reduce contract processing volume by 60%. New York's City Council proposed requiring agencies with chronic late-payment patterns to file corrective action plans with specific timelines and performance targets.

Across the country, municipalities are investing in automated accounts payable systems that eliminate paper checks and manual approval steps, reducing processing time from weeks to days. Prompt payment laws at the state level provide penalty frameworks that create financial incentives for timely payment — though enforcement remains inconsistent.

The common thread in every successful reform is the same: treating vendors as partners in service delivery rather than as creditors who can be made to wait. The businesses and nonprofits doing the work of city and county government deserve to be paid for it — on time, in full, and without having to finance the gap themselves.

Price You Pay for Slow Government Payments

The Vendors First Team — Tue, 07 Jul 2026 19:08:44 GMT

The Price You Pay for Slow Government Payments — It's More Than You Think

Every time a city or county pays a vendor late, that government tells itself it hasn't really cost anything. The invoice is still there. The money will eventually go out. No harm done.

That logic is wrong — and increasingly, the data makes that clear.

Delayed government payments don't just inconvenience vendors. They create a cascading series of hidden costs that ultimately flow back to taxpayers in the form of higher bids, reduced competition, diminished services, and an eroding base of qualified contractors willing to work with the public sector at all.

Vendors Build the Wait Into Their Price

When contractors know from experience that a government client pays slowly, they don't simply absorb that risk — they price it in. A 2024 construction industry report found that 97% of general contractors said they increased the prices of their bids to account for payment delays and the financing costs they had incurred. The same contractors said they would offer discounts of up to 14% to clients who guaranteed timely payment.

That means a city with a pattern of slow payments is structurally paying a premium on every contract — a premium that doesn't appear as a line item in any budget but is embedded in every bid that comes across the procurement desk.

For small businesses operating on narrow margins — typically around 8% in many service industries — even a 30-day delay can stress a business. A 90-day or 6-month delay can be company-ending. And as small vendors exit the market or decline to bid on government work, the remaining pool of contractors shrinks. Fewer bidders mean less competitive pricing and less leverage for the public sector to negotiate quality and cost.

The Compound Effect Down the Chain

Payment delays don't stop at the prime contractor. They cascade. Subcontractors — who are typically even smaller and more financially vulnerable — have increasingly made payment history a central factor in whether they bid at all. Today, 100% of surveyed subcontractors factor a contractor's payment track record into their bidding decisions, and three-quarters raise their bids specifically to account for anticipated delays.

When a city slow-pays a general contractor, that contractor slow-pays its subcontractors. The sub draws down its credit line. The sub's supplier waits longer for payment. An entire supply chain absorbs the cost of a single government payment delay. By the time all those carrying costs, financing charges, and bid premiums are tallied, the original invoice delay has multiplied into a system-wide inefficiency measured in billions.

The Talent and Capacity Drain

Beyond cost, slow government payments reshape the vendor market in a subtler but equally damaging way: they drive capable organizations out of the public sector entirely.

When nonprofits providing essential services — homeless shelters, behavioral health clinics, after-school programs — spend months navigating late payment cycles, taking on debt, and diverting management attention to cash flow firefighting rather than mission delivery, the organizational toll is severe. Staff morale suffers. Leadership time is consumed by finance problems rather than program delivery. Some organizations quietly scale back services or wind down programs rather than continue operating as an involuntary lender to the government.

In New York City, a 2025 comptroller's report found that the city issued first payments to human services providers more than 200 days — over six months — after the contract's official start date, on average, across seven of eight agencies reviewed. The organizations providing those services had to fund six-plus months of operations on their own, or borrow to cover it.

The Prompt Payment Penalty That Nobody Talks About

Federal and state law does provide some recourse. Prompt payment statutes in many jurisdictions require government agencies to pay interest on late invoices — in 2025, the federal rate is 4.625%. But these penalties are rarely enforced proactively, and when they do apply, the cost gets shuffled into agency budgets that then require cuts elsewhere. As one former federal financial management official noted, "They may have to cut overtime or cut hiring to make room for these payments."

In other words: the cost of late payments is real, it is measurable, and it always lands somewhere. It is time governments started accounting for it honestly.

The Cash Flow Trap — How County Contracts Are Quietly Bankrupting the Businesses That Serve Us

The Vendors First Team — Tue, 07 Jul 2026 19:03:35 GMT

You won the contract. You did the work. Now where's the money?

For thousands of small businesses and nonprofits that contract with city and county governments across America, this is not a rhetorical question — it's a daily reality. Government contracts are sold as stable, reliable revenue. In practice, they've become a financial trap that forces vendors to fund public services out of their own pockets while they wait months, sometimes over a year, to be paid.

The numbers are staggering. In New York City alone, more than 7,000 invoices worth over $1 billion sat unpaid as of a spring 2025 snapshot of the city's procurement system. At least $675 million of those invoices were billed for work completed in 2024 or earlier. In Philadelphia, 90% of city contracts were finalized after their start date over a five-year period studied by the Pew Charitable Trusts — meaning contractors were legally unable to even submit invoices for months after work had begun. More than a quarter of those vendors waited five months or longer just for their contracts to be registered.

This is not a cash flow problem. It is a structural crisis.

Borrowing to Survive

When a city or county delays payment, the burden doesn't disappear — it transfers. It moves directly onto the balance sheet of the vendor: the homeless shelter that can't pause services, the behavioral health provider that must make payroll regardless of what City Hall is doing, the small IT firm that submitted an invoice and is still waiting. These organizations fill the gap with credit cards, lines of credit, and in some cases, the personal savings of their owners.

A 2025 survey by Intuit QuickBooks found that small businesses heavily affected by late payments were 1.7 times more likely to become increasingly reliant on credit cards and carried average balances 1.5 times higher than businesses that received payment on time. Small businesses with longer payment terms used credit cards to cover 40% of their monthly expenses on average, compared to 33% for those paid promptly. These aren't growth investments — they're survival costs, and they compound over time.

For nonprofits, the stakes are even more immediate. "Nonprofits cannot run programs on IOUs from the City," said Susan Stamler, Executive Director of United Neighborhood Houses in New York, whose organization found that sixteen of its member groups were collectively owed more than $90 million in late city payments. "Right now, nonprofits are forced to take out lines of credit just to ensure their staff are paid and critical programs for New Yorkers continue."

The Hidden Interest Rate on Government Work

There is an implicit financing cost embedded in every late government payment — a cost that vendors absorb silently. Inflation erodes the value of a delayed invoice with each passing month. Interest on lines of credit accumulates. And when that money is tied up in accounts receivable rather than deployed in operations, vendors lose the ability to grow, hire, or take on new work.

Over 70% of government contractors face payment delays of 60 to 90 days or more. Construction contractors — who must pay for labor and materials up front — have seen these costs become existential. The construction industry absorbed an estimated $280 billion in costs tied directly to slow payments in 2024 alone. Carrying costs — inflation losses, interest charges, and foregone investment — are invisible to the agencies causing them, but they are acutely visible to every vendor trying to make payroll on Friday while waiting for a check that's three months overdue.

What Needs to Change

The problem is not that cities lack the money. It is that the systems for moving that money to vendors are broken — paper-heavy, bureaucratically layered, and chronically understaffed. In Philadelphia, researchers found that the city's reliance on one-year contracts, mandated by a 100-year-old state law, was the single biggest driver of backlog. Simply allowing multi-year contracts could reduce the volume of contracts moving through the system by 60%.

In New York, the City Council advanced legislation in 2025 to require agencies with high rates of late contract registration to submit corrective action plans with performance targets and timelines. The Council also called for restoring a 33% budget cut to the Mayor's Office of Contract Services — cuts that eliminated 14 staff positions directly responsible for processing payments.

The fix is not complicated. It requires political will, administrative investment, and an acknowledgment that vendors are not a free line of credit. Every month a government check is delayed is a month a vendor is financing public services at their own expense.