Factoring Government Receivables

ByPAUL

 

Factoring government receivables can be an excellent option for businesses that have difficulty collecting payment on a government contract. The process involves selling these invoices to a factoring company, such as FundThrough. The company will extend a credit advance on the invoices, less the fee, allowing the company to remove these receivables from its balance sheet. One example of a successful partnership between a business and a factoring company is the case of Run Veggie, a Washington D.C.-based food-service operation that served 10,600 meals to police officers during the Joe Biden Inauguration.

Government contracts must be approved by the contracting officer for factoring. A factoring company will typically advance 80% or more of an invoice’s value, depending on its credit worthiness. Once the government pays the invoice, the factoring company will reimburse the company for its advance, plus a small fee. In some instances, factoring is not possible with every government contract, but many do. Often, these companies only offer this option if a business cannot receive payment from a government contract in a timely manner.

Besides being debt free, factoring government receivables can also help improve your cash flow. By using invoice factoring to finance government contracts, you’ll have access to additional cash for payroll and other overhead expenses. In addition to providing consistent cash flow to your business, government factoring can help you secure a government contract and improve your business’ credit standing. And because it doesn’t involve a loan, government receivables are an excellent option for businesses without the traditional means of financing.

Accounts receivable factoring also works for businesses that sell on credit terms. These businesses sell their receivables to a factoring company. The company then pays the business the debtor when payment terms have been settled. In other words, they sell their accounts receivables to a factoring company for a discount. In return, the factoring company pays them with cash today. The process is a win-win situation for both parties.