Government Contract Receivables Factoring

Getting a contract from the US federal government has a number of advantages. The government can provide you with a steady stream of work – if you know how to find it and bid for it. And, when used strategically, government contracts can help your business grow to the next level.

However, government contracts can also be challenging, especially for a small business. In many cases, contracts can be large enough to drain most of your resources, leaving little money for other projects. Then there is the wait for payment. This wait can be a problem for government suppliers whose cash flow is tight because they are growing quickly.

How does the government pay contractors?

Contract payment terms are stipulated in the Federal Acquisition Regulations (F.A.R.). In many cases, the speed of payment depends on the size of the opportunity, the size of the contractor, the government agency, and urgency, among other criteria.

In general, the government tries to pay some small businesses within 15 days of invoicing. This quick turnaround can be very helpful to the small businesses that qualify for it. However, not every business or contract gets paid that quickly. Many companies often get paid on net-30 terms, or longer. For these companies, slow payments can create a financial challenge.

Can’t wait to get paid? Consider receivables factoring

Unfortunately, not every company can wait 30 days (or longer, in some cases) to get paid. Some need the money sooner. Slow payments can create a financial problem because your company still has to pay its own bills. These payments often come from cash reserves.

You need to pay suppliers, employees, rent, and other expenses. You also need funds to service other clients and to start new projects. Obviously, meeting these demands can be difficult if your cash reserves are low and if your invoices are taking a month to get paid.

You can solve this problem by factoring your government invoices. Factoring finances your slow-paying government invoices. This solution gives you immediate cash that you can use to run your business and grow.

How does invoice factoring work?

Factoring transactions are relatively simple to execute. The factoring company finances your invoice in two installment payments. The first payment, which can cover 85% to 90% of the invoice, is advanced once you have fulfilled your government contract and invoiced for the work. In other words, if the contract is for services, the services must be completed. If the contract is for products, the products must be delivered and accepted.

The second installment is advanced once the government pays the invoice in full, on their usual payment terms. The second installment covers the 10% to 15% that was not initially advanced, less the factoring fee.

Learn more details about factoring and how it works.

Advantages of factoring receivables

Factoring receivables has a number of advantages over other solutions. The most important advantage is that it improves your cash flow quickly by funding your slow-paying invoices. Receivables factoring was created to solve this specific problem.

Additionally, factoring financing lines are flexible and can grow with your business. The most important requirement to increase the line is to have invoices from good-paying clients, such as the government.

Lastly, invoice factoring is easier to get than most other solutions. Many small businesses can qualify for funding, as long as their accounts receivable are not encumbered and the business is well managed. Most factoring lines can be deployed in a week or two, though this time frame varies by federal contract and agency.

What type of contractors can get funding?

In general, we can work with any contractor that provides a service or sells a product to the US government, including:

  1. Consultants
  2. IT specialists
  3. Product distributors
  4. Manufacturing companies
  5. Staffing services
  6. Security work
  7. And others…

Can government subcontractors use factoring?

Government subcontractors can also use invoice factoring. However, they must keep in mind one important distinction. In their case, the government is not their client. Rather, the prime contractor is their client. Therefore, the transaction must qualify as a regular commercial factoring transaction. The prime contractor must have good commercial credit and must pay you on net terms, regardless of when they get paid by the government.

Want a factoring quote?

We are a leading provider of factoring services to government contractors. For an instant quote, use this form, Otherwise, call us toll-free at (877) 300 3258.