Selling products or services to the federal government can be very profitable but can also be financially challenging. Like most major commercial customers, federal and state government agencies pay their invoices in about 45 days after the product or service has been rendered. Government contractors usually have supplier and employee obligations that must be paid sooner. This can create a working capital problem that puts the company in trouble. Invoice factoring is an alternative to solve cash flow problems.
Factoring solves cash flow problems by accelerating the revenues that are tied in your slow paying federal invoices. A factoring company advances money using your accounts receivables as collateral. Your company can usually get about 85% of the gross value of the receivable as an initial advance. It gets the remaining 15%, less the fee, once the invoice is paid in full. Factoring companies can provide this type of financing because government invoices are considered safe collateral.
Qualifying for receivables factoring is easier than qualifying for most conventional loans.
Your company must:
- Be free of legal and taxation problems
- Invoice for completed services or delivered products
- Have invoices that are free of liens
One of the main benefits government receivables factoring is that it’s very adaptable and grows to accommodate increasing government sales. Please click here to read more.