One of the best contracts for a small business to hold is a contract with a government agency. These are contracts that typically are highly profitable and provide ongoing work or demand for products, but they aren’t without their challenges as well. Government contract factoring is an effective way to deal with the possible drawbacks to this type of work.
The Challenges
The most common issues that small businesses face with a government contract is the time lag between supplying the work or products and actually having the invoice paid. In best case scenarios this will be 30 days, in worse case it can be up to 90-days, and then there can also be issues with government payments being delayed.
This leaves your company with the problem of how to continue with your other business, buy supplies and materials, make payroll, and cover your financial obligations. The frustrating thing is that most small businesses can’t just go to the bank for a loan, and even if they did funding would take weeks to arrive.
The Solution
The solution to these challenges is to use government contract factoring services. This allows you to sell your invoices to a factor, which then provides funding up to a percentage of the value of the invoices. There is no need for a credit check on your business since the factor is considering only the creditworthiness and ability to pay the invoices by your customer, which is the government.
The company offering government contract factoring will charge a fee for this service, which should be established and clearly outlined before you choose to work with the company. The initial deposit to your account will be less than the value of the accounts receivable you sell, leaving the factor with a reserve. Once the government pays the invoice in full, the factor deducts the fees for their service and wires any remaining amount of the reserve into your account.
This provides a small business with immediate cash in days from their application with the company offering government contract factoring. While the company will take a slightly reduced amount for their accounts receivables, they have the added benefit of immediate cash to fund their business and continue to take on new work and new opportunities.
With the best companies offering government contract factoring, there is never a fee for application or termination and there is no contract. This allows you to have maximum control over your cash flow and to provide the cash you need when you need it.
