WHAT'S IN THIS GUIDE
Winning government projects and contracts is an exciting achievement for any company, but the thrill is likely to fade once you begin navigating the complexities of government payments. Whether due to regulations, delays, or administrative hurdles, many businesses find themselves waiting on government agencies to pay their invoices. It’s why they often turn to government factoring.
As small business owners ourselves, we get it — you need steady access to working capital to cover your operating expenses, such as making employee payroll or staffing up for big projects. Time you’d spend on managing slow payments from government agencies could be better spent focused on growth opportunities. With government invoice factoring, your invoices are paid ahead of net terms and the factor company manages the collection effort on your behalf.
Wondering if factoring government receivables is right for your business? We explore the pros and cons, as well as the step-by-step process for government contract factoring below, so you can make the most informed decision possible for your company.
Government invoice factoring can offer several benefits for companies that have contracts with government agencies. Some of the key benefits of government contractor financing include:
Government factoring is not without its limitations. Here’s what you need to know.
Invoice factoring for government contracts works in a similar way to factoring for other types of invoices. Here’s a general overview of the process:
Your business provides goods or services to a government entity and submits an invoice for payment.
Instead of waiting for payment from the government agency, you sell the invoice to a factoring company for cash upfront. The factoring company typically advances a portion of the invoice value, typically around 80% to 90%. (FundThrough has 100% advance rates).
The factoring company takes responsibility for collecting payment for the invoice from the government entity. Once the payment is received, the factoring company deducts its factoring fee and any other charges, and then pays you the remaining balance.
You enjoy improved cash flow, greater flexibility, and less admin hassle any time you want. Cover everyday expenses or fund business growth on your terms.
There may be some additional requirements or limitations for factoring government invoices, depending on the agency involved and the terms of the contract. For example, some agencies may require the factoring company to be registered with them or limit the percentage of invoices that can be factored.
It’s important to carefully review the terms of your government contracts and any applicable regulations before factoring invoices. Working with a reputable and experienced factoring company can help ensure a smooth and successful arrangement.
It really depends on the factoring company. However, many government factoring companies won’t work with government subcontractors because a government agency isn’t the direct client.
Not all government factoring companies are created equal. When considering a government factoring company, here are some important factors to look for:
Qualifying for government receivables factoring doesn’t rely on your credit score. It doesn’t matter if you are a small business just starting up or if you’ve been in business for years. But you must qualify in other ways.
See if you qualify for FundThrough’s innovative funding solution in just a couple of minutes.
FundThrough pays invoices in days for a wide range of industries outside of this list as well.
Your questions answered.
Invoice financing and factoring are both ways for businesses to get cash based on outstanding invoices, but there are some key differences between the two.
Invoice financing involves borrowing money against outstanding invoices as collateral. Essentially, your business takes out a loan from a lender and uses the unpaid invoices as collateral. You remain responsible for collecting payment on the invoices.
Factoring, on the other hand, involves selling the invoices to a third-party factoring company at a discount. The factoring company takes responsibility for collecting payment from the customers, and advances the invoice value upfront.
Technically factoring is not a loan. It is the purchase of your accounts receivable.
Sources: • 1. https://www.acquisition.gov/far-smart-matrix
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