Invoice Financing: The Ideal Tool To Finance Government Contracts
Government contracts can mean big business for many companies. The government has deep pockets and such contracts can add a significant amount to a company’s bottom line. However, because these jobs tend to be so massive, it can cost a great deal of money to fulfill them. Businesses may or may not have the capital on head to cover the costs. Those that can not come up with the money may be forced to turn down these very lucrative jobs. This would obviously be the worst case scenario. Many businesses do just that because they are not fully aware of all their options. Invoice financing is one alternative for companies that need monies to fulfill government contracts.
Invoice financing is a method that many companies, most small and large, use to infuse capital into their business. It is a great alternative for those who either do not want to take out a loan or that would not qualify for one. In today’s economic climate, it is more difficult then ever to get a loan. The banks simply are keeping a tighter reign on their money then it times past. This means that business have to be creative and resourceful. This is exactly what invoice factoring is, a creative and resourceful way for companies to get the money that they need to function. It is a great option for those who have secured a government contract but have no idea how they are going to come up with the money, to finance the job.
Even though invoice financing, purchase order financing, and receivables financing are used by major companies, many businesses are unaware that it exists. This is unfortunate because these funds could mean the difference between a company being able to stay in business and being forced to close their doors.
Invoice financing involves a company selling their invoices to a factor. The factoring company will pay them upfront, in cash, a percentage of the outstanding invoices. This gives the business that sells their receivables the money they need to cover any necessary costs. Those that have been awarded a government contract would then have the money to finance the work. Subsequently, they will be able to bid for more government contracts and have the money on hand needed to complete the job even before they get started. This allows even small firms to compete for lucrative contracts.
After a factor has purchased a company’s invoices, they themselves will collect on the debt. Once the debt is collected, they will return the money to the company that originally owned the invoice, minus their fees.
This is an excellent option for businesses vying for government contracts because factoring companies consider the credit worthiness of the debtor. Because the government is considered a great credit risk, it should be fairly easy to find a reputable factoring company to work with.