Invoice Funding: The Effective Way to Finance Government Contracts and Projects
Invoice funding is a great way for companies to finance the government contracts or projects they have managed to secure. Government projects or contracts can be very lucrative for businesses. Not only does the government farm out expensive projects, they are also very dependable in terms of paying what they owe and on time. As a result, companies that are able to secure business from the government are considered very fortunate.
While many benefits exist for companies that are fortunate enough to land government contracts, not everything associated with this type of arrangement is advantageous. For instance, it may require that a company spend a great deal of money in order to fulfill a contract and it will be necessary, in virtually all cases, for the company to come up with the money upfront. If the job is especially large or if the company is low on cash, it may be very difficult for them to generate the cash necessary. If a business is not able to do so, their only option might appear to be, to turn down the business or attempt to wrangle out of the contract. However, both of these options could potentially be problematic and also detrimental to a business. One very effective alternative and solution to the problem would be invoice funding.
The invoice funding process is a very simple one. A business sells their government invoice to a Factor. The Factor will purchase it for less than it is worth, typically between 70% and 90% of its full value. The company which sold the invoice will receive the balance after the Factor has collected on the invoice, minus any fees. The government will pay the factor after the work has been completed and as stated above, they will send the balance to the company who originally owned the invoices.
Invoice funding is typically an easy process, especially when the invoice is owned by the government. Factoring companies are confident that they will be able to recoup their money and so are often eager to work with companies that possess these types of contracts. In fact, a company will likely be able to secure top dollar for their government invoices. This allows them to shop around, get the most money and best terms.
Some companies, especially small businesses, shy away from going after government contracts. This is because they often do not have the capitol on hand to complete a large job and then wait 30 to 90 days before their paid for it. Government receivables funding, gives them an opportunity to not only go after these jobs or contracts, but to be paid right away so that they can recoup their outlays without waiting the standard 1 to 3 months.