How To Finance Government Contracts with Invoice Factoring
Most people recognize the value of being able to secure government contracts. Government agencies have deep pockets and many needs. Because they have the money to spend and are able to pay what they owe, many businesses clamor to secure government work. However, this does not come without a downside.
Financing government contracts can be very expensive. Because these jobs often tend to be large, a company looking to fulfill them must have enough cash on hand to do so because they will not be paid until 30 to 90 days after the work has been completed. This means that they will not only have to finance the job but also keep themselves afloat during the job and while waiting to be paid. If they have other customers, which hopefully they will, they will also have to finance those projects as well. Because of this, many small businesses shy away from government contracts work even though they would enjoy the opportunity to work with the government and recognize its benefits.
In the past, most companies would use bank financing in order to bankroll the work required to fulfill a government contract. With that source of funding essentially drying up, except for a few fortunate companies, it is necessary to pinpoint good alternatives. One such alternative is invoice factoring.
Invoice funding is an excellent way to finance work secured via government contracts. Invoice funding works like this, a Factor will purchase the government invoice at a discounted rate, typically at 70% to 90% of its full value. Because it is a contract with the government, the rate that Factors are willing to pay, is typically higher. This is because they have few doubts that the government will actually pay what they owe.
After a Factor has purchased a company’s invoices, those monies can be used by the business to buy materials, pay workers or cover any of their fixed expenses. The money can be used essentially for what ever that company wants. After the job has been completed, the Factor will then collect on the invoice. They will return all monies to the original owner minus the amount of money they already paid plus their fee. The process can work as fast as 24 hours and usually takes no more than seven days. The initial set-up may take more time but after a relationship has been established, a company can potentially receive funds within 24 to 48 hours
Invoice factoring is an excellent way to raise the capital needed to fulfill government contracts. With that source of money available, companies can feel confident going after work with the government because they will be able to finance it and still bankroll themselves until they are paid.