Construction Invoice Discounting

The Scenario

A West Midlands groundworks and civil engineering contractor with annual turnover of £2.1 million had been trading for seven years and was consistently profitable. The business employed 34 people and operated across a portfolio of residential development sites for national housebuilders, with payment terms of 45 days from valuation. The directors had built the business from a single machine and a two-person team, and the quality of their work had earned them places on two major housebuilder preferred contractor lists.

The Challenge

Despite its strong trading performance and pipeline visibility, the business carried a near-permanent overdraft of £80,000-£120,000 and regularly struggled to meet PAYE deadlines and subcontractor payments on time. The root cause was structural: at any given moment, between £280,000 and £400,000 of the business's earned revenue was sitting in unpaid certified valuations, waiting for the 45-day payment cycle to complete. The directors had approached their bank about increasing the overdraft, but after a six-week assessment the bank offered only a £30,000 increase, insufficient to materially change the position, describing the business as 'well run but overcrowded at the margin.' The directors contacted Doulton Bridging Finance having been referred by their accountant.

The Solution

Our initial assessment confirmed the working capital problem was a pure timing issue, not a profitability issue, with a strong, verifiable debtor book of certified valuations against nationally recognised housebuilder brands with excellent credit ratings, making this an invoice discounting case rather than a loan case. We recommended a confidential invoice discounting facility, chosen specifically because the directors were concerned about their housebuilder clients knowing they were using an external finance facility: under a CID arrangement the clients see no change, continuing to receive invoices and payment reminders from the contractor directly and paying into what appears to be the contractor's own account, with the facility entirely invisible to them. We approached three specialist invoice finance lenders active in the construction sector who understood the JCT valuation and retention framework, received two formal indicative offers within three working days, negotiated the preferred terms, and had the facility fully live within eight working days of initial instruction.

The Deal Structure

The Outcome

In the first month following go-live, the business drew £285,000 against its current debtor book and cleared the £110,000 bank overdraft within three weeks. PAYE and subcontractor payments that had been running 7-10 days late were returned to on-time for the first time in over two years. The directors used the improved cash position to bring on two additional plant operators, allowing them to tender for a third housebuilder framework they had previously been unable to resource. Within six months revenue had increased by 18% and management accounts showed EBITDA improving from 6.2% to 9.1%, the result of better supplier payment terms and the new contract adding incremental margin. The bank overdraft was not cancelled and remains available as a secondary buffer, but has not been drawn since month two of the invoice discounting facility.