Factoring Account Receivables Towards Mitigating Cash Flow Fluctuation for Construction Projects

The objective of this study is to mitigate cash flow fluctuation for construction projects with the use of factoring account receivables, which is a generally accepted financial tool that has thus far not often been not used for construction project financing. The relevant literature, empirical practices, and factoring theories from outside the construction industry are all evaluated and the features of needed to derive the cost function are explored and integrated. A case study is utilized and discussed to illustrate the use of factoring for a construction project and its related costs. The results show that using factoring account receivables mitigates cash flow fluctuation around 50% for a $183 million New Taiwan Dollar project. In addition, the application of factoring has the advantage of facilitating financial management, instantly improving cash flow, enhancement of investment efficiency, avoiding extra loan procedures, improving credit rating, and transfer of financial risk. Factoring is indeed a feasible financial tool for construction projects.