Every year, the government usually awards contracts to small and medium-sized enterprises [SMEs]. This presents these companies with a great opportunity to make a good amount of money. While it is pretty lucrative to work with the government, it can be quite challenging for businesses with limited finances. That’s because the government may take up to a few months before issuing payments. This can compromise your cash flow and prohibit you from paying your employees and suppliers on time. This can hugely affect your business operation.
This is where government contract factoring comes in. Government invoice factoring is simply one of the best methods you can use to finance your operations when fulfilling a government contract. You don’t have to borrow money from the bank or any other financial institution because government invoice factoring allows you to fund your government projects.
It works this way; you simply look for a reputable factoring company that accepts government contracts, sell your outstanding invoices to the company to get partial payment to fund the project, and then receive the rest of the payment less the factoring fees. It basically works in the same way as invoice factoring in private projects.
People who tend to qualify for the government invoice factoring are contractors and material suppliers. Subcontractors may also qualify for invoice factoring, but their clients won’t be the government, they are usually in contract with the general contractor.
Why you should consider government contract factoring
Here are some of the incredible reasons you should consider government contract invoicing:
- Invoices won’t get paid right away
One thing you need to have in mind is that your invoices for the government will not get paid as soon as you finish your projects. Most contracts with the government usually take between 30-90 days to be settled. This means that after you have fulfilled the contract, you can receive your money after up to 90 days.
Of course, this is a long time, and it can affect your cash flow. And if you have a small or medium-sized company, you may not afford to wait until you get your payments. Invoice factoring can help you offset the waiting period by getting the advance payment from the factoring firm.
- Your staff and suppliers must be paid
As you perform a project, you need to continuously spend a lot of money on various things such as paying your staff and suppliers and buying materials and equipment. You need to use money, but you may not have the resources to do so. Invoice factoring can help you handle this issue. You will factor in your outstanding invoices with your government and receive a partial payment that you can use to pay your employees and buy your materials and equipment.
- You can start new projects
When you have a limited budget, it can be pretty challenging to start a new project. Perhaps you have just landed a new project, but you don’t have the finances to fund it. The best thing is to consider factoring your pending invoices with your government to get money and start new projects faster.