A Cash Flow Solution For Government Vendors

In the fierce competition of today’s market only the companies with the strongest cash flow positions can survive. When thousands of companies are not able to make it through these tough economic times, it is important to do business with reputable firms that will stay afloat.

By securing a contract with the government, one can have a big relief. Typically, the government is a reliable payer and establishing a relationship with it can result in other business opportunities. However, a problem can be with how long the government takes to pay its vendors. It can take as long as 90 days to be paid for the products or services provided. Imagine how much cash on hand a business will need to buy materials, meet payroll, pay for rent and many other business operations.

Think of a business that has limited funds: a start up, a business that is working on several projects or a company with a too small credit line from their lender. What are the options to raise the funds quickly when hoping to win a government contract with guaranteed payment that can take your company to the next level? Should you take on the contract and hope to get paid quickly or simply turn it down, waiting for smaller jobs with better payment terms? A choice like that just adds more stress to business owner’s life. Luckily, a fast and pretty simple solution does exist – Invoice Factoring.

Invoice Factoring or Accounts Receivables financing can resolve all cash flow related worries of the government vendors. Factoring companies are primarily concerned with the creditworthiness of the vendors’ customers. Governments are typically very good credit risks and are eligible for factoring. Sounds good, doesn’t it? Moreover, the initial process is quite simple and it only takes a few days to get the funds the first time. Once the relationship with a factor is established time to fund shrinks to 24 – 48 hours.

Factoring works in the following way: a vendor sells open invoices to a factoring company along with providing any other required documentation and receives from 70% to 90 % of the money owed on it immediately. The factoring company will be contacting the government entity regarding the payments on the invoices and once the money is received, the balance of the invoice amount will be paid back to a vendor less the factor’s fee for service.

This is a win-win situation for all the parties. A factoring company provides its regular services and a government vendor gets to take on a profitable contract and establish a relationship with a government entity, that the lack of wouldn’t not allow without the factor.

By Natasha Matsyushevskaya