Why is construction AR harder to finance than manufacturing AR at term sheet?
Last updated: August 27, 2026
Why is construction AR difficult collateral?
ABL Advisor explains that "most working capital providers do not lend to the construction industry because of the nature of accounts receivable activity (i.e. progress billings)." Construction contractors typically bill monthly based on percentage of completion, not upon delivery of completed goods. If the contractor does not finish the project or the work is defective, the owner may withhold payment, making the progress billing uncollectible.
Additional construction AR challenges include retention (withheld until project completion), bonded AR (surety has priority lien), and long project cycles with uncertain cash flow timing.
Why is manufacturing AR easier to finance?
Manufacturing AR typically represents completed goods shipped to the customer with an invoice for a specific dollar amount due by a specific date. If the customer does not pay, the manufacturer can pursue collection through standard commercial remedies. Manufacturing AR aging is more predictable, and the goods have already been delivered, reducing collection uncertainty.
| Industry | AR characteristics | ABL treatment |
|---|---|---|
| Manufacturing | Invoiced for completed goods shipped; predictable aging | 70%–85% advance rate on eligible AR (OCC: "70 percent to 85 percent of eligible accounts receivable") |
| Construction | Progress billings based on % completion; retention withheld; bonded AR with surety priority; collection depends on project completion | Excluded by most lenders or lower advance rate (specialist construction lenders only) |
Sources: Bank of America Business Capital, ABL Advisor
Related topics
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- Retention bonded contractor AR carve-back
- Work-in-process schedule borrowing-base certificate
Frequently asked questions
Why is construction AR harder to finance than manufacturing AR at term sheet?
Construction AR often includes progress billings, retention, and bonded contractor receivables. Bank of America Business Capital notes that in the case of a construction company, lenders may not feel comfortable lending against AR that could be difficult to collect due to progress billings, retention or bonding requirements. ABL Advisor states that most working capital providers do not lend to the construction industry because of the nature of accounts receivable activity, specifically progress billings. Manufacturing AR typically represents completed goods shipped and invoiced, making it easier to advance against.