Factoring Blog

Invoice Factoring For Government Contractors

financing - government contractorsSelling products and services to the federal or local governments can be very profitable. Combined, government agencies purchase billions of dollars a year in goods and services. Furthermore, they have a number of programs designed to help small companies succeed. Although this is a very competitive market, opportunities are plentiful.

However, small companies have one problem that prevents them from capitalizing on those opportunities.

The problem: Lack of working capital

Most small government contractors are operated by entrepreneurs who bootstrapped the company, either by self-funding or by using some private capital. Because of this, they size of their business and their growth s is limited by their cash flow. This problem becomes worse because most government agencies take between 30 to 60 days to pay an invoice. Few companies, especially small ones, can afford to invest in growth, operate and wait to be paid – all at the same time.

Solve the problem by financing invoices

One way to solve this problem is to complement your existing resources with government receivables factoring. This solution solves your cash flow problem by financing your government invoices. This gives your company immediate access to working capital. You can use these funds to pay for business expenses or invest in new growth. With the financing line in place you will be in a better position to offer payment terms to your government clients.

How does it work?

The first thing that you will need to so is to file some paperwork with the government to advise them that you will be financing your invoices. These is done through the assignment of claims process. Once this is in place and your services (or product) are rendered, the invoice is ready for funding.

The finance company will finance your invoice in two installments. The first installment covers about 80% of the invoice and is given as soon as the work is completed. The second installment covers the remaining 20% , less the financing cost, and is rebated once the government pays for the invoice in full.

How will this help you grow?

The obvious advantage of using this program is that your cash flow will improve. You will be in a position to bid for more – and bigger – government projects because you will no longer need to wait up to eight weeks for payment. The second advantage is that the line has no fixed limit. You can usually finance as many invoices as you want, provided that they meet the funding requirements. The line is specifically designed to support and help growing companies.

An important stepping stone

Qualifying for an invoice factoring line is relatively easy. Your government invoices will represent most of the collateral that you need to qualify. Additionally, your invoices need to be free of liens and your company should not have serious tax problems. For many companies, factoring represents a stepping stone to other types of financing. It’s not unusual for companies to qualify for a small business loan after having used factoring for a while. This makes invoice financing an important financial tool for growing government contractors.

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