How To Finance Government Contracts with Invoice Factoring and PO Financing
Companies that are fortunate enough to contract out their services or products to the U.S government are likely thankful for the privilege. The U.S. government is an excellent client. Their pockets are deep and they can provide large projects which can mean a lot of revenue. For a small business, securing government contracts can mean a lot for their bottom line. However, fulfilling these contracts can be a bit stressful especially for those companies with cash flow problems.
It costs money to fulfill a government contract. The company that secures this business must put up the money to complete the project. They have to hire labor, purchase materials and whatever costs are associated with a particular job. The bigger it is, the more they have to pay out. This can be financially draining. If a company is small, it can be devastating. Even if they can pull together enough money to finance this job, they might not be able to take on any others. This means lost revenue and a squandered opportunity for growth. Even after they finish the job, their financial picture might not change for sometime because they will have to wait for the government to pay up. They could be anywhere between 30 and 90 day.
Fortunately, there are a number of ways to remedy these kinds of situation. Two of the most common are debt and factoring. Factoring involves a factor purchasing outstanding invoices. This provides the seller the opportunity to get the working capital they need right away. They won’t have to wait until the invoice is paid. In fact, the entire process can be completed within a week. There won’t be too many business owners that wouldn’t prefer to be paid in 7 days after the completion of a job rather then 60.
After the invoices are sold, the factor will then collect on them. All monies collected will be returned to the original holders of the invoice. The factor doesn’t keep them but they do receive a fee. This is generally a percentage of the invoice.
Finding a good factoring company isn’t terribly difficult. The internet is a great place to look for them. It is important to only work with reputable companies. Look for an industry leader whenever possible because there will likely be less problems. It will also be important to study the offer and terms of any factor offer prior to agreeing to it. It is much easier and far less troublesome to ask questions before anything is signed then it is to attempt to get out of an unfavorable contract.