Factoring Government Receivables: The Smart Way to Increase Your Business Cash Flow
Factoring government receivables is a great way for a business to improve their cash flow. Many businesses each year either compete for government contracts or desire to. What holds many of them back is the fear of not having enough money to actually fund the job once they secure it. Bank financing, while fairly readily available in the past, is no longer an option for many companies. Truth be told, it never was a possibility for many businesses. Companies have always had to have really good financials and been in business for a certain amount of time before they bank financing was even a consideration. New companies and those with average-to-poor credit were turned away in droves. Today, with the very serious and ongoing recession, banks are turning more people away then ever. Fortunately, factoring government receivables is a good financing alternative for funding government contracts.
In order to utilize this form of commercial financing, it will be necessary for a company to have first secured a government contract. Once they have done so, they will be in a position to negotiate with a Factor. Factors are willing to purchase government contract invoices. They will do so at a discounted rated. This amount is generally in the neighborhood of 70% to 90%. Government contracts can command a premium price because the Factor is confident that they will be able to recoup their money.
The company that sells their government contract invoice will be able to use those monies for whatever they want. Many times, it will be utilized it to fulfill the contract. Instead of using cash from their own accounts, they will use the money from the Factor, which is essentially like getting an advance on the money a company would be paid from the government after completing the job. Because under normal circumstances, this might be 30 to 90 days after the fact, many companies, unless they are cash-rich or have lots of paying customers, may find it difficult to sustain themselves and take on a large government job at the same time. Factoring government receivables allows them to do both.
Factoring government receivables is one of the easiest invoices to factor. Because Factors are most concerned about the credit worthiness and thus, the ability of the invoice holder to pay their bills, a governmental agency which typically ranks high on both fronts, is considered a good risk. Subsequently, a Factor is willing to pay more money for it and is often eager to do the deal.
In summary, businesses looking to go after government contracts, but are unsure how to come up with the money to fund the project and take care of their current and ongoing expenses, should consider factoring government receivables. It is a great way to raise capital, especially for this purpose.