How contractors cover payroll between jobs
Contractors cover payroll between jobs with working capital or a line of credit sized to revenue, repaid as the next progress draw or holdback lands. The problem is timing — crews are paid weekly while the money comes in stages — so the fix is short-term financing tied to a draw you can already see coming.
Why payroll is the pinch point
Crews get paid weekly no matter where the project's cash is. Materials are bought up front, subs expect prompt payment, and a holdback of roughly 10% sits locked until substantial completion — sometimes months after you've spent the money to earn it. Between the end of one job and the first draw of the next, or during a stretch where several draws land late, payroll is the bill that can't wait. That's the gap most contractor financing is built to close: covering wages now against revenue that's real but not yet in the account.
The financing that bridges it
Two products fit best. A line of credit is a standing buffer you draw from to make payroll and repay as draws clear — flexible for the routine ups and downs of a construction year. A working-capital advance suits a specific, known gap, like carrying two payrolls until a large draw lands. Both size to your revenue and deposit history rather than to collateral, so a contractor with steady billings can access meaningful funds without pledging equipment. If slow-paying general contractors are the real cause, construction invoice factoring turns those progress billings into cash directly.
Sizing the financing to your draw schedule
The right amount isn't a round number — it's the size of the actual gap between when payroll hits and when the money that covers it lands. Map it: total the wages and other costs you'll carry over the weeks until the next draw or holdback clears, and finance to that, not to a guess. Undersize it and you're short again next week; oversize it and you pay interest on money you didn't need. A facility sized to a specific, dated inflow — a signed contract with a known draw schedule — is both cheaper to carry and easier to get approved, because repayment is visible.
Line of credit vs factoring for payroll
A line of credit is the simplest tool for general timing gaps: draw to make payroll, repay when the draw lands, pay interest only on what's out. Construction invoice factoring fits when the specific cause is slow-paying general contractors — it advances against your progress billings and collects when the GC pays, so it scales with your work and doesn't add debt. Some contractors use both: a line for the everyday swings and factoring on the larger, slower progress invoices. The right mix depends on whether your squeeze is general timing or specific slow-paying customers.
How to set it up before you need it
The contractors who never miss payroll arrange the financing before the crunch, not during it. Map each job's cash timeline — when wages and materials hit, when each draw is expected, when the holdback releases — and line up a line of credit or advance against that schedule ahead of mobilization. Lenders fund this readily when you can show a signed contract and a clear draw schedule, because repayment is documented rather than hoped for. Set up in advance, the financing is a scheduling tool; scrambled together mid-gap, it costs more and comes slower.
Keeping payroll financing affordable
Payroll financing earns its cost when it keeps a profitable job — and crew — intact through a timing gap; it becomes a trap when it papers over a job that loses money or a business that's chronically short. Keep it affordable by borrowing only against draws you can actually see coming, repaying as each lands rather than rolling the balance forward, and not stacking several advances against the same receivables. Used as a bridge tied to real, dated inflows, it's cheap insurance against missing payroll. Used to postpone a structural problem, it compounds. The discipline is matching every draw-down to a specific, repayable inflow.
A worked example across a project
Take a four-month build with monthly progress draws and a 10% holdback. In month one you mobilize, buy materials, and run weekly payroll before the first draw arrives at the end of the month — the sharpest gap of the job. You draw on your line to cover that first stretch, then repay when the draw clears, and repeat a smaller version each month as costs lead billings. The holdback — say $20,000 on a $200,000 contract — stays locked until substantial completion, so even after the final draw you're carrying that amount for weeks or months; a modest working-capital advance or a continued line balance bridges it until release. Across the whole job you might touch the financing four or five times, each draw-down sized to a specific upcoming draw and repaid when it lands, so you never carry more than the gap in front of you. The total interest is small next to keeping the crew paid and the schedule intact — and because every draw-down was tied to a dated inflow, repayment took care of itself as the project's money came in.
Frequently asked questions
- How do contractors make payroll when a draw is late?
- Usually by drawing on a line of credit or a short-term working-capital advance sized to revenue, then repaying it when the progress draw or holdback lands.
- Is it better to use a line of credit or factoring for payroll?
- A line of credit is simplest for general timing gaps. If the cause is specifically slow-paying general contractors, construction invoice factoring targets that by advancing on your progress billings.
- Can I get payroll financing with a short track record?
- Often yes. Both a line of credit and factoring lean on revenue and receivables more than time in business — factoring especially, since it underwrites your customers' credit rather than yours.
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