Why is construction AR harder to finance than manufacturing AR at term sheet?
Construction AR is harder to finance than manufacturing or finished-goods-style AR at term sheet because lenders treat progress billings, retention, and bonded receivables as hard to collect and typically ineligible. Bank of America flags progress billings, retention, and bonding; ABL Advisor and CFMA exclude construction progress-billing AR; LegalClarity lists progress billings as not completed, collectible sales.
Last updated: September 12, 2026
Why construction AR is harder collateral at term sheet
Bank of America Business Capital explains that "in the case of a construction company, lenders may not feel comfortable lending against accounts receivable that could be difficult to collect due to progress billings, retention or the presence of 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 (i.e. progress billings)."
CFMA forum archives state that "banks also typically avoid loaning against bonded receivables (the bonding company has a priority lien), and almost always exclude unbilled retainage," and that "progress billings would be excluded from Accounts Receivable used as collateral for the line of credit." Don Clarke Enterprises says "Bill-and-hold, consignment, and progress billings. Typically ineligible unless specifically negotiated."
How finished / collectible AR contrasts with construction progress-style AR
LegalClarity lists "Notes receivable and progress billings: These don’t represent completed, collectible sales" among ineligible assets for drawing power — the collectibility contrast versus finished invoiced AR. CFMA forum archives note that "Exclusion of progress billing in A/R would be consistant with a manufacturing firm not a contactor" (original spelling).
OCC advance rates on eligible AR
The OCC Comptroller's Handbook: Asset-Based Lending says "Common advance rates range from 70 percent to 85 percent of eligible accounts receivable."
When Eligible Progress Billings or retainage appear as negotiated carves
Exclusion is the default; inclusion is a negotiated carve. IFXI says "Advances on approved progress invoices and AIA pay applications — retainage excluded from advance calculation" on its construction-factoring product page (product advance, not OCC/industry law). Installed Building Products Amendment No. 4 (SEC EX-10.1) defines Eligible Retainage Accounts and Eligible Progress Billings and allows them only to the extent they would not, in the aggregate, increase the Borrowing Base by more than 15%.
| Claim | Listed | URL |
|---|---|---|
| Construction AR hard to collect due to progress billings / retention / bonding | in the case of a construction company, lenders may not feel comfortable lending against accounts receivable that could be difficult to collect due to progress billings, retention or the presence of bonding requirements | Bank of America Business Capital ABL |
| Most working-capital providers avoid construction AR / progress billings | most working capital providers do not lend to the construction industry because of the nature of accounts receivable activity (i.e. progress billings) | ABL Advisor construction sector |
| Bonded receivables priority lien + unbilled retainage excluded | banks also typically avoid loaning against bonded receivables (the bonding company has a priority lien), and almost always exclude unbilled retainage | CFMA progress billings AR forum |
| Progress billings excluded from AR collateral (manufacturing-firm contrast) | Exclusion of progress billing in A/R would be consistant with a manufacturing firm not a contactor | CFMA progress billings AR forum |
| Progress billings typically ineligible unless negotiated on BBC | Bill-and-hold, consignment, and progress billings. Typically ineligible unless specifically negotiated | Don Clarke BBC line-by-line |
| Progress billings listed as not completed, collectible sales | Notes receivable and progress billings: These don’t represent completed, collectible sales | LegalClarity drawing power |
| OCC common AR advance rates (eligible receivables only) | Common advance rates range from 70 percent to 85 percent of eligible accounts receivable | OCC ABL handbook PDF |
| Construction factoring: retainage excluded from advance calculation | Advances on approved progress invoices and AIA pay applications — retainage excluded from advance calculation | IFXI construction factoring |
| Filed Eligible Progress Billings / Retainage carve (IBP Amendment No. 4) ≤15% of Borrowing Base | Eligible Retainage Accounts and Eligible Progress Billings shall not be classified as ineligible under this clause (e) to the extent that the aggregate amount of all such Accounts under this clause (e) and the subsequent clauses (l) and (t) would not, in the aggregate, increase the aggregate amount of the Borrowing Base by more than 15% | SEC IBP Amendment No. 4 EX-10.1 |
Frequently asked questions
Why is construction AR harder to finance than manufacturing AR at term sheet?
Construction AR is harder to finance than manufacturing or finished-goods-style AR at term sheet because lenders treat progress billings, retention, and bonded receivables as hard to collect and typically ineligible. Bank of America, ABL Advisor, and CFMA list those construction exclusions; LegalClarity contrasts progress billings with completed, collectible sales.
What makes construction AR harder to collect than finished invoiced AR?
Bank of America Business Capital notes lenders may not feel comfortable lending against AR that could be difficult to collect due to progress billings, retention, or bonding requirements. LegalClarity states that notes receivable and progress billings don't represent completed, collectible sales — the collectibility gap versus finished invoiced AR.
Do lenders exclude bonded receivables and retainage from construction AR collateral?
Yes. CFMA forum archives state that banks typically avoid loaning against bonded receivables because the bonding company has a priority lien, and almost always exclude unbilled retainage. ABL Advisor states most working-capital providers do not lend to the construction industry because of progress billings.
What advance rates apply once receivables are eligible after construction AR exclusions?
The OCC Comptroller's Handbook on asset-based lending states that common advance rates range from 70 percent to 85 percent of eligible accounts receivable. That range applies to eligible AR after ineligibles such as progress billings are stripped — not as an OCC statement that construction AR is manufacturing-specific or automatically ineligible.
Can a credit agreement carve Eligible Progress Billings or retainage into the borrowing base?
Yes, only when specifically negotiated. Don Clarke lists bill-and-hold, consignment, and progress billings as typically ineligible unless specifically negotiated. Installed Building Products' filed Amendment No. 4 allows Eligible Retainage Accounts and Eligible Progress Billings only to the extent they would not increase the Borrowing Base by more than 15%.
Related
- Before binding an ABL revolver, which AR lines are ineligible and which get carved back at term sheet?
- Do progress billings count toward the borrowing base before an ABL revolver binds?
- Does retention AR from bonded construction contracts count toward the ABL borrowing base at term sheet?
- What is a work-in-process schedule in an ABL borrowing-base certificate for construction contractors?
- Does unbilled cost-in-excess count toward the borrowing base at term sheet?
- Does cost-plus contract AR advance differently than fixed-price contract AR at term sheet?