Large government contracts can be a boon for your company, as they provide generous amounts of revenue. Unfortunately, government contract payments can be far from reliable. Since government contracts depend on collaboration between multiple governmental agencies, payment can take longer than with other kinds of businesses. Sluggish payment processes can disrupt cash flow and even jeopardize your own timely payments to employees, suppliers, vendors, or subcontractors. This is where the process of invoice factoring comes in. Learn if you can apply it to your government contract and how to use invoice factoring for your municipal clients.
What Is Invoice Factoring?
At its simplest form, invoice factoring is a form of financing for businesses. Typically, a contractor waits for payment from a client, a process that can take anywhere from 30 days to 90 days or more, which holds especially true for government contracts. Over time, this can present serious challenges for your cash flow.
Invoice factoring works to resolve cash flow issues by purchasing outstanding invoices and paying them out, minus a small percentage, in as little as 24 hours. This allows your business to have the cash flow to cover essential business expenses. Some examples of when companies use invoice factoring include:
- Offering customers flexible financing, leading to a delay in payment of invoices
- Banks declining business loans
- Line of credit is at capacity
- Cash flow being a consistent issue with your business
- Business credit line too low to qualify for traditional business loans
- Company struggles to meet basic expenses, such as payroll, while waiting for customer invoices
Delayed payment arrangements, like those that you typically find for a government contract, can seriously disrupt business operations for small to medium-sized businesses. In fact, the nature of payment might preclude SMBs from accepting government contracts without invoice factoring, forcing businesses to turn down a potentially lucrative revenue stream.
How Does Invoice Factoring Work for Government Contracts?
Anyone who is a vendor on behalf of the government knows the amount of work required for consideration. Compared to the vetting process your company went through to get the contract, invoice factoring will seem simple by comparison. Government invoice factoring works essentially the same as it does for other sectors, but there are a few things you should know.
Do Large-Scale Individual Invoices Bar Government Contract Factoring?
Large government contracts can be potentially lucrative, which you’ll find from the moment that you print your invoice. Some wonder, however, if the size of the individual invoice precludes factoring in the first place. The answer is both yes and no. Many accounts receivable factoring companies will not consider government contracts because the amounts are often so high. Bay View Funding, on the other hand, specializes in this type of invoice funding and is aware of the regulations and process that government invoices require. Bay View Funding has over thirty years of experience with invoice factoring for both state and federal government contracts, which means we can handle your large invoices with ease.
Government contractor invoice factoring is ideal for any sized business. Whether you are having trouble obtaining traditional financing or are operating on thinner margins, our invoice factoring services can boost your cash flow and give you the freedom to take on new contracts. Consider us an essential part of your business growth strategy.
If you are considering a government contract but think cash flow issues will preclude you from taking it, Bay View Funding can help. Contact us to learn more about invoice factoring for government contracts and get immediate payment for your hard work.