Receivables factoring in Government
Factoring companies provide government contract financing for government contractors. Not only do most of these finance companies offer factoring services, but they usually provide other types of government financing including the following:
- Invoice factoring or accounts receivable factoring
- Asset-based lending or accounts receivable financing
- Mobilization financing or unbilled revenue financing
- Purchase order financing
- Supplier payment financing or supplier guarantee
- Term loans
- Equipment financing
Some government finance companies also provide other financial services and products such as financial commitment letters, channel partner financing and joint venture financing. Commitment letters or financial support letters demonstrate a small business has the financial resources necessary to fulfill a government contract, if awarded.
Government contract awards
The U.S. government awards contracts to prime contractors who may hire subcontractors to perform much of the work. Both prime contractors and subcontractors have to follow government guidelines that dictate how contracts must be performed.
The government is the largest buyer of goods and services in the world. Every year the U.S. government spends a half trillion dollars on contracts for goods, services, research and development. Fortunes are made in government contracting, but oftentimes cash flow is the constraining resource for the businesses that provide those goods and services.
Small businesses and startups bid on a variety of government contracts such as defense and aerospace contractors, service contractors, technology companies and procurement suppliers. The Department of Defense (DOD) accounts for the largest portion of government spending. Bidding for government contracts requires certain requirements and qualifications.
Factoring for government invoices
Government agencies take 30+ days to pay their invoices, so factoring companies offer invoice factoring services to alleviate the problem. Invoice factoring improves your cash flow because you don’t have to wait to collect your receivables. A government factoring company advances you cash as soon as you bill your customer. The faster cash flow enables you to pay employees, contractors and suppliers quicker, as well as take on more projects.
In order to insure proper payment from U.S. government agencies and protect its interest in payments from U.S. government receivables, factoring companies must comply with the Assignment of Claims Act (FACA) . FACA regulates the assignment of payments from a federal government contractor to a financial institution and affords certain protections and rights to those lenders that abide by its rules.
Invoice factoring is often as good or better than a bank line of credit. You get working capital without incurring debt and you don’t have to spend weeks or months applying for a bank loan that might not get approved because you don’t meet their requirements. Government factoring companies can provide your business an adequate credit facility within one to two weeks. Once you’re account is set up, the factoring company typically funds your invoices within one to two days.