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Our Complete Guide to Government Invoice Factoring

Triumph Business Capital

March 15, 2019

Cash is essential to any business, and there’s a debt-free commercial finance option that ensures that you receive it quickly. It’s a dependable, low-risk alternative when compared to a line of credit or a loan, and you certainly won’t have to spend weeks applying for it. We’re talking about government invoice factoring.

We’ve created a comprehensive guide that illustrates the benefits of factoring government invoices, as well as a sample of the types of companies that should consider government contract factoring.

What Are the Benefits of Government Contracts?

Government contracts provide steady, profitable work to contractors. These contracts can also last for years. Once you’ve successfully navigated the procurement process, you have a better sense for how to seek out other government contracts in the future.

And as a contractor, when you have one government contract, you can easily acquire more, and having the government as your customer is potentially a huge opportunity for stable business growth. You shouldn’t have to turn down these opportunities because of financing challenges. Steady working capital ensures that you can bid on new projects confidently. You don’t want to have to go back to the government during the project and tell them that you have no funding to continue the contract.

Even as a government contractor, you may face similar issues that other business owners face — stagnant cash flow trapped in your accounts receivables. If you’re a contractor or subcontractor who doesn’t want to wait a long time for payment, you may want to consider government contract factoring before you experience any cash flow problems and avoid signaling any hiccups that could disrupt the contract.

What Exactly is Government Contract Factoring?

Government contract factoring can make it possible for small- and medium-sized companies to do business with the government. You’ll receive an advance depending on the value of your contract with a government agency, even if you’re completing projects upfront. This bridges any cash flow gaps between when you finish the work and when the government actually pays.

The government invoice factoring process works similarly to other industries served by invoice factoring. A factoring company like Triumph Business Capital will take a look at your unpaid invoices and buy invoices at a discounted rate, and we’ll offer you a cash advance. However, from industry to industry, there are differences. For instance, in government contract factoring, sold invoices need to be collected from the government instead of private or public companies. Of course, the U.S. federal government is the largest debtor in America, so it’s going to function differently than smaller entities.

What Are Some Advantages of Government Contract Factoring Agreements?

Whether you have a fixed price contract or labor-hour contract, you still have the opportunity to factor your invoices. It’s an extremely flexible solution that you can use as you need to. Plus, it doesn’t matter the type of contract you have. With factoring, you can have a consistent base of working capital.

Here’s what you can expect from government invoice factoring: a third-party factoring company provides you with the necessary working capital to make investments or pay employees and vendors. The remainder of the money is held in a reserve account until the government pays the invoice. Once the government agency pays, you’ll receive the rest of the cash (minus any agreed upon factoring fees). In fact, you’re paid up to 80% or 90% of the invoice quickly after you apply and submit your invoice and its approved.

Instead of waiting for a traditional loan, you can resolve cash flow issues with factoring now if you have outstanding invoices. What’s also important to remember is that if you’re a new business, or a business with a low credit score, you may not even be able to qualify for a bank loan or line of credit. Government contract factoring takes a broader picture view, one that takes into account your clients’ credit and likeliness to pay.

Some Issues Government Contractors Will Experience

One of the greatest disadvantages of government jobs is that they don’t guarantee payment when you need it most. While the government always pays their companies, they aren’t in any hurry to take care of your invoice. Many things can affect invoice payment: elections, government shutdowns, holidays, and other occasions can slow payment. Fortunately, you don’t have to wait one, two, or even three months for payment. Instead, the factoring company will pay you first, and then collect payment from the government. Should the government leave your contract unpaid, your business is protected by the Contract Disputes Act of 1978.

Government contracts are competitive and hard to obtain. They can take months to secure, and a larger company can afford to underbid the smaller, less established ones. Even if you’re awarded the contract, there’s no guarantee that you’ll have the initial or ongoing financing needed to start and maintain it.

With invoice factoring, your financing is tied to your invoices, not the terms of the government contract. That means if you have an invoice for completed work or services, you can factor that invoice and receive immediate payment to continue business operations or investments in equipment or personnel.

Which Businesses Should Consider Government Contract Factoring?

Factoring works for a variety of different projects and industries. Here’s a sample of the types of industries that use invoice factoring to help fund their businesses:

  • IT
  • Oil and Gas
  • Cleaning & Janitorial
  • Manufacturing
  • Security
  • Staffing
  • Transportation

In considering invoice factoring as a government contract funding solution, you should make sure to satisfy the following:

  • Unpaid invoices or anticipate longer than comfortable payment terms
  • Municipal, local, state, or federal debtors that owe you money and have good credit
  • Invoices that the debtor (in this case, the government) accepted for the completed products or services

Not all factoring companies will offer government invoice factoring, but you don’t have to worry when you work with a factor that specializes in handling government contracts. Triumph Business Capital works with businesses of all sizes and handles their government contracts. We follow the guidelines surrounding the Federal Assignment of Claims Act (FACA), ensuring that the entire invoice factoring follows all required laws and mandates.