Government Invoice Factoring

 

Government Invoice Factoring


 

Invoice factoring is a concept with a long history enabling a business to sell its invoices to raise immediate working capital so that the enterprise is assured of cash on hand to perform its day-to-day and month-to-month functions without fear of its own financial obligations failing to be met.

 

The factor is a financial lending institution, but not a typical bank providing ordinary business financing. The factor purchases business invoices for a rated percentage less than the full value of the invoices. The percentage delta is effectively the fee and carrying charges for the factoring service rendered.

 

Actually, the delta between the invoice value and the financed amount is usually larger than the negotiated fee percentage, which may be between three to ten percent of actual invoice value. But the financed amount may constitute up to an additional 10 percent less than the invoice value, so the factor may lend an amount up to 20 percent less than invoice value. When the factor has been paid by the institutions originally invoiced, thirty to sixty days, or more, from the date of invoice, the factor will pay the company from whom it purchased the invoices the balance of the delta less their financing fee.


 Government Invoice Factoring Guidelines

Government invoice factoring is a service available to private enterprises that work on government contracts, so the overall function of factoring is virtually identical with a couple of exceptions.

 

In the case of government contracts, the factor knows that although the government may sometimes be slow in paying invoices, they will pay, so the risk to the factor is relatively small to recoup its investment in government contract invoices.

 

How Government invoice factoring differs from other factoring

 

Not all factoring companies will engage government invoices because most of them prefer a high-volume turnover of invoices month by month from the company needing the factoring service, so a government factoring service may be more difficult to find, but they do exist; typically as institutions that specialize in this form of factoring.

Government Invoice Factoring

The other distinction is that government invoice factoring typically deals in large sums of money, perhaps millions of dollars, for which the company is going to need an immediate large infusion of cash in order to finance the start of the contract with hiring staff, tooling, initial production costs, and the like.

 

These are the reasons why government invoice factoring differs from typical factoring and why it may be more difficult, but certainly not impossible, to find a factor who deals in government contracts. Low volume, high dollar factoring is the stock-in-trade of specialized business-to-government contracts.

 

Even though government invoice factoring companies are more difficult to find, and they need to have a higher volume of cash available to purchase government contract invoices, they are willing to accept the risk because these contracts do pay very well. As a result, a factor who has the wherewithal to deal in government contracts knows that without their service, the initial demands of big government contracts would tap most companies which bid on such contracts of all of their available working capital, and that might not yet cover the initial costs of launching the contract work.

 

They also know that once a company has been awarded a government contract, and are able to successfully complete the contract, the company’s ability to bid on new contracts will have an advantage over companies who have not successfully bid on a government contract. Even though government contracts are not high volume month to month from the factor’s perspective, the factor knows that a company’s successful contract completion will mean repeat business from that company on new contracts. These are all things you need to consider when your looking at government invoice factoring options on the market today.