Contractor Funding 101: Bridging the Net-30/60 Gap Without Breaking Payroll
You’ve done the work. The invoice is out. The payment lands in 45 days. Friday’s payroll lands in 6. Here is the financing structure that handles that gap repeatably.
The single most common conversation we have with contractors and construction subs is some variation of: "the receivable is real, the GC is good for it, the money is just not here yet, and I have payroll Friday." This is the exact problem working capital is built to solve, but the financing pattern matters as much as the financing decision itself.
Here is the structure that works repeatably, and the one that doesn't.
The shape of the problem
A typical sub on a commercial project carries 30 to 90 days of work-in-progress from labor performed to invoice paid. Materials are usually paid earlier — often net-7 from the supplier, or COD on smaller items. Payroll is weekly or biweekly.
Stack those cycles together and you get a structurally widening gap between cash out (materials, labor, payroll) and cash in (GC payments). The gap is the financing event. The size of the gap scales linearly with the size of the project pipeline.
The math: if you're billing $80,000 per month and your average days-to-payment is 45, you're carrying ~$120,000 in receivables at any moment. Grow the business to $160,000/month at the same payment cadence and you're suddenly carrying $240,000. Doubling the business doubled the working capital requirement, often without doubling the cash on hand.
The two financing structures contractors use
Structure A: factoring (sometimes called invoice financing).
Sell the invoice to a factor at a discount; receive 80–90% of the invoice value upfront. When the GC pays, the factor takes their cut and remits the rest.
The fit is mechanically clean — the financing is per-invoice, scales perfectly with the business, and disappears when the receivable is collected. The drawback is operational: the factor is in your collections process. They contact your GCs. Some GCs see this as a yellow flag. For sub-tier construction work, this is usually fine. For prime contracting or relationship-driven work, it can complicate things.
Structure B: working capital advance, sized against revenue.
A weekly-payment advance, taken once, sized to bridge ~12 weeks of the AR gap. Repaid via fixed weekly ACH over a set term. No GC contact, no per-invoice mechanics, no operational footprint visible to clients.
The fit works when the AR gap is structurally consistent (you're always carrying about the same number of weeks of work-in-progress). It doesn't work as well when the AR gap swings wildly with one or two big projects.
The rule of thumb
For sub-tier work with 6+ active GC relationships and consistent monthly billing volume, working capital advances are usually the cleaner structure. The fixed weekly debit is predictable, the underwriting is fast, and there's no third party in your client conversations.
For prime contracting with 1–3 large concurrent projects and lumpy billing, factoring tends to fit better. Per-invoice financing is the right shape for per-invoice cash-flow swings.
For contractors doing both — small recurring sub work plus occasional large prime projects — the answer is often both, in parallel, sized against different revenue pools.
Sizing the working capital advance
The most common sizing mistake is sizing to the largest receivable. The right sizing is to the average rolling 12-week AR balance, scaled to about 60% of that.
A good rule of thumb: size the advance to cover roughly half to two-thirds of your typical outstanding AR — enough to absorb timing slippage on any one or two invoices without needing a second advance to bail out the first. Sized that way, the weekly payment lands in a comfortable range relative to revenue.
Going bigger than that creates two problems. The weekly payment grows beyond what current revenue can comfortably service, and the surplus capital just sits in the operating account without a productive use — eroding the whole point of the deal.
When to take the advance
The same rule as restaurants: take it when you don't need it.
The strongest contractor profile we see takes a working capital advance in the first 4–6 weeks of a new larger project — when the project pipeline has clearly stepped up but the first invoices haven't yet been billed, much less paid. At this exact moment, the cash floor is still strong from the prior project's collections, the new revenue is documentable as a signed contract, and the underwriting desk can size the advance against the new run rate confidently.
Operators who wait until they're under cash pressure to apply pay more, get less, and have less negotiating room.
Renewal timing for project-based businesses
The advance should pay down through the natural collection cycle of the project that caused you to take it. If you took the advance to bridge the WIP on a 9-month project, your weekly debits should be sized so the advance is fully repaid roughly when the project closes out.
At 50% paid down — usually around month 4 or 5 of the project — the renewal opportunity opens. The renewal becomes the bridge for the next project. This is how a working capital advance turns into a continuous capital line for a contractor: each renewal rolls forward to fund the next project's WIP, repaid by the prior project's tail receivables.
What to avoid
The single most expensive mistake we see contractors make is taking an MCA — a percentage-of-card-sales product — to bridge a receivables gap. It almost never fits. Construction businesses don't have meaningful card volume; the holdback math is built for businesses that don't look like yours. The product gets sold by aggressive brokers because it's easy to qualify for, not because it's the right shape.
If a funder offers you a daily holdback on card volume to fix a contractor cash-flow problem, that funder doesn't understand your business. Hang up.
What success looks like
Two operational signals after the right financing structure is in place:
- Payroll is no longer the variable that determines whether you bid the next project.
- You stop personally guaranteeing line-by-line which GC payment will land in time for which obligation.
When financing is shaped right, it disappears into a weekly line item and you go back to bidding work. That's the entire point.