Most school districts tend to outsource their school bus services to third party providers. Although offering transportation services to school districts is a great business, it also has its financial challenges. One common challenge  is that districts pay their invoices in 30 to 60 days. This can be very difficult for companies that don’t have the financial resources to wait this long for payment because they have their own immediate expenses to pay such as fuel, payroll, and repairs.

One way to address this problem is to request faster payments. However, most school districts are reluctant to pay sooner and will follow the terms of their contracts. Sometimes, school districts may be enticed to pay sooner if they’re given a discount in exchange for a faster payment. Offering a 2% discount for a payment in 10 days or less is a common strategy. For most companies however, the better option is to get a business financing solution such as invoice factoring.

Factoring provides working capital for your company by accelerating the revenues that are tied to slow paying invoices. This gives your school bus company the cash flow it needs to meet ongoing expenses, and to expand its fleet as it pursues new opportunities. When used correctly, factoring con provide financial stability and a platform for future growth.

Most factoring transactions finance your accounts receivable in two installments. The first installment, usually about 80% of outstanding invoices, is advanced as soon as the work is completed and invoiced for. The second installment, which covers the remaining 20% (less the factoring fee) is advanced once the school district pays for the invoice in full. Note that the school district does not need to pay sooner – they pay on their regular schedule.

The most important requirement to qualify for factoring is to have credit worthy customers. For the most part, school districts are reliable payer’s so this probably won’t be a problem. Additionally, your company should also meet these criteria:

1. You must only invoice for completed work and must not invoice in advance
2. Your company must not have any serious legal or tax problems
3. Your invoices must be free of liens and encumbrances
4. Company owners must have industry experience and a solid reputation

Most factoring lines are designed with growth in mind and will accommodate increases in sales, as long as your company meets the factoring criteria. Because of this, accounts receivable factoring can be a great solution for school bus companies that have cash flow problems due to slow payments from school district customers.

Selling products or services to the federal government can be very profitable – but can also be financially challenging. Like most major commercial customers, federal and state government agencies pay their invoices in about 45 days after the product or service has been rendered. However, the government contractors usually have supplier and employee obligations that must be paid sooner than that. This can create a working capital squeeze that puts the company in trouble. One way to solve this problem is to use invoice factoring.

Factoring solves the working capital squeeze by accelerating the revenues that are tied in your slow paying federal invoices. Your government customers don’t need to pay sooner though. Rather, a factoring company advances money using your accounts receivables as collateral. Your company can usually get about 85% of the gross value of the receivable as an initial advance. It gets the remaining 15%, less the fee, once the invoice is paid in full. Factoring companies can provide this type of financing because government invoices are considered safe collateral.

Qualifying for receivables factoring is easier than qualifying for most conventional business financing products. Your company must:

• Invoice for completed services or delivered products
• Have invoices that are free of liens
• Be free of legal and taxation problems

One of the main benefits of government receivables factoring is that it’s very adaptable and can grow to accommodate increasing government sales.  This makes it an ideal solution for growing government contractors that are constrained by working capital problems.

The U.S. government buys billions of dollars worth of products and services from commercial companies every year. This has held true even during the credit crunch and recession of the past few years, making government sales one of the more attractive opportunities during the past few years. In response to this trend, a number of companies have started or grown their government sales departments.

Generally, government suppliers are either selling products or services. The financial challenges that these two types of suppliers face are different. For example, most product suppliers need capital to purchase goods, that can then be resold to the government to fulfill their purchase order. Their biggest challenge is the lack of “pre-order” capital. On the other hand, service suppliers, need to cope with the fact that government invoices can take up to 45 days to pay after delivery of service, which affects cash flow. They need “post order” financing.

Unless the company is well capitalized, government suppliers will need business financing to be able to meet their obligations and grow their companies. One alternative is to use a business loan to improve cash flow. The challenge is that business loans are difficult to obtain in the current financing environment. Most financial institutions will require solid financial statements, showing at least a couple years of profitable operations. Additionally, the company will need to have substantial assets to post collateral. Few government contractors companies can meet this criteria and usually have to focus on alternative financing options.

There are two alternative forms of financing government transactions that have been gaining traction in the past couple years. They are purchase order financing and factoring financing. These two financial tools are available to most government suppliers.

Purchase order funding solves a common problem for government suppliers that sell products – how to pay your suppliers so that you can fulfill your government purchase order. It solves this problem by paying your suppliers on your behalf, and then settling the transaction with your company once the government pays for the goods. One of the most important advantages of purchase order funding is that it allows your company to grow beyond your current financial capabilities.

Most purchase order funding transactions are structured as follows:

1. You get the purchase order from the Government
2. The PO finance company pays your supplier
3. Your suppliers ships the goods
4. Your company invoices the government
5. The government pays and the transaction with the finance company is settled

Factoring financing, on the other hand, solves a different problem. Most government service providers need to wait up to 45 days to get paid for their services. But few can afford to wait that long because they have obligations to meet, such as payroll and rent. Invoice factoring provides an advance against the government invoice, providing the liquidity your company needs to meet its obligations. This transaction is also settled once the government pays the invoice.

Most factoring transactions are structured as follows:

1. Your company invoices your customer
2. Your company sells the invoice to the factoring company
3. The factoring company advances 80% (this varies)
4. The government pays the invoice
5. The factoring company advances the remaining 20%, less the factoring fees

Both of these alternatives are easier to obtain than conventional financing and have the flexibility to grow with your business. To qualify, your company must have viable government purchase orders, decent margins and be free to liens and judgments.

Most governmental suppliers or services companies are less affected by recessions that conventional commercial enterprises. The government always needs a constant supply of products and services, even during recessions, making these types of businesses very attractive to entrepreneurs. However, government vendors are not immune to the cash flow problems that affect conventional companies. Like most commercial clients, the government seldom pays for goods or services up front. Rather, your company has to deliver the products, invoice the government, and then wait to get paid. How long it takes to get paid varies, but it averages 30 days. In the meantime, you are still responsible for paying suppliers, employees and other costs. Waiting to get paid can be a challenge for cash strapped or growing companies.

One solution is to use business financing to cover your expenses while waiting to get paid. One common solution is to consider factoring your government invoices. Factoring solves this problem by providing immediate funds for your government invoices. Instead of waiting 30 days for payment, you get paid in about two days. This provides the cash liquidity you need to pay suppliers and employees, without having to wait for the government to pay their invoices.

Factoring invoices works by using a third party financial intermediary company between yourself and the government. The factoring company buys your government receivable from your company in exchange for an immediate payment. They hold the invoice until the government pays, at which point they settle the transaction with your company. Although there are a number of ways to structure a transaction, most invoice factoring transactions are structured as follows:

• You deliver the product/service to the government an invoice for it
• The factoring company buys your invoice and advances you  80% of the invoice as a 1st installment
• Once the government pays, the factoring company settles the transaction and remits the remaining 20%, less their fee

Most government purchases can be financed using invoice factoring, provided you follow a process to notify the government. Your factoring company or an attorney will be able to advise you on the details of how to properly notify the government, but generally, this is a simple process provided you do it properly.

Selling products to the federal government can be very profitable, especially for companies that take advantage of the multiple  incentive programs that the government has for small and disadvantaged businesses. Although these businesses have ample opportunities for success, few have the cash flow to survive in the federal environment. For example, government vendors that resell goods need to prepay their suppliers and then wait for the government to pay them. Similarly, companies that sell services to the government need to meet payroll regularly, often before they get paid for their services by the government. Few small companies can afford to wait.

One solution is to use factoring financing for government suppliers.  This solution provides an advance for your federal invoices, providing the funds you need to operate the business. With factoring you can grow your business and meet your obligations without having to wait for the government to pay you.

One of the advantages of working with a factoring company is that factoring financing is easier to get than conventional business financing.  The biggest qualifying requirement is to have credit worthy business client – and the US government has the highest credit rating available. Aside from that, you business needs to be profitable and free form liens, judgments and encumbrances.

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Learn about invoice factoring in Alabama and factoring in Alaska.