How to Increase Your Working Capital For Government Contracts

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Many government vendors spend sleepless nights worrying about having the working capital needed to support the new contract. Using a bank credit line can be very expensive. If the contract is not awarded, all the bank fees still have to be paid, including standby fees.

Accounts Receivable Factoring

Factoring is endorsed by the US Government in accordance with the “Assignment of Claims Act of 1986”. This act allows government vendors to assign their invoices to a bank, trust company, or other financing institution including any Federal lending agency. Government vendors can significantly benefit from the financial strength of the State and Federal Governments.

Why does the US Government endorse factoring?

  1. It evens the playing field for all vendors
  2. It expands the vendor base that they can purchase from
  3. It encourages the private sector to offer funds

Factoring is not a loan! It is a commercial funding strategy in which a business sells all or part of its accounts receivable. The receivables are sold at a modest discount similar to a discount offered if the customer pays cash or pays within 10 days.

The benefits of Factoring cannot be overstated!!

  1. Vendors can increase business opportunities within the government sector.
  2. Vendors have maximum flexibility -they will have the working capital to support the awarded bid.
  3. It gives quick access to working capital – usually within 24 to 48 hours of submission of invoice
  4. It keeps the cash flowing smoothly during periods of business growth spurts
  5. It is basically an Unlimited Line of Credit without the extra financing costs
  6. Peace of mind

The vendor’s account is opened with a funding company with basically no or very minimal fees. The average time to get set up with a funder is 7 to 10 business days. Once the vendor is approved, they will be able to submit invoices and receive advance payment within 24 to 48 hours.

One of the hardest jobs for business owners today is trying to secure business financing. Factoring is an ideal solution for companies ranging from the startups who don’t yet qualify for bank financing, to the well established companies who want to take their business to the next level. It provides financial support for growth, to manage upswings in business or to cover day-to-day operating expenses.

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Source by Linda Bayko

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