Paragon Financial Group is funding during the COVID-19 crisis.

What is Government Contract Financing?

Government contract financing can be a very effective way for companies to fund the operational costs associated with doing business with the Federal government. Every year, the U.S. government awards billions of dollars of contracts to private companies throughout the United States.

They are available for both small and large businesses.

While it can be a great feeling to close a government contract, it can also be quite expensive to complete assigned jobs. Some companies will struggle to cover the operational costs of a particular project and still fund other projects and assignments.

Working capital problems can occur, which can paralyze the company. There may not be enough to pay personnel and also cover expenses. One way for a company to get the cash that they need is to sell its government contract invoices to a factoring company.

What is the Process of Government Contract Financing?

After a company has finished a government contract job, they will prepare and send an invoice. The government may not pay right away. It could take 1-2 months before they send payment. Meantime, the company will be out of the money that went towards operational expenses to complete the job. Without any income directly from this job, the company could be cash poor. For a large company with a good deal of income, this may be a bit inconvenient. However, it won’t put their company at risk or cause them to be unable to fulfill other commitments or jobs.

Government Contract Financing for Small Businesses

However, for smaller businesses, having to wait 1-2 months to receive payment for an expensive job could effectively shut down their operations. Situations like this make it impossible to generate any other additional income. However, government contract factoring gives them a way to get the money they need to sustain their business.

Government Contract Factoring sells the invoice of completed government contract jobs. A company would be effectively selling incoming monies. The factor, or the company that buys the government contract invoice, will handle collecting the money. This might involve them sending the government written correspondence or calling them over the phone.

The invoice is sold at a discounted rate. For example, a seller may require that the factor funds them 90% of the amount billed on an invoice. Once the factor can collect all of the money, they will give the remaining, in this case, 10% back to the seller. However, the seller won’t see all of this because the factor typically charges a few points to cover for their services.

A company that has won and completed a government contract may be willing to sell the invoice from the job to get the cash needed to continue fulfilling the contract. If a company needs money after a completed government contract and can’t wait 30-60 days to receive payment, sell the invoice to a factoring company to get money right away.

Paragon’s two decades plus of government contract expertise gets you working capital fast.

Apply Securely, call 888-400-5931 ext 1 or email us.

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