Getting a government contract can be a game changer for any business. Federal, state, and local government agencies contract out a significant portion of its work to private companies. Whether you manufacture products or provide a service, getting a contract from the government usually means consistent work and stable, recurring revenue.
There is one big challenge that can come with a government contract, though. If you have experience with government contracts, you probably know this challenge all too well. If you just earned your first government contract, you’ll learn about this issue soon enough.
The federal government is in no hurry to pay your invoice. It’s not unusual for the government to take 60 or even 90 days to pay a bill. Also, don’t expect to get an advance from the government before you start the work. The government can choose from any number of other suppliers, so they’re not likely to meet your demands for any portion of upfront payment.
Similarly, you’ll find that you don’t have much leverage when you ask the federal government to pay your invoice. If you threaten to withhold work until they pay, they’ll likely take their business elsewhere.
Government contracts are a double-edged sword. They can provide you with a big boost in work and revenue, but they can also put you in a very difficult cash flow situation. You likely need to pay workers and contractors to do the work for the government job at potentially prevailing wages. You may need to pay for materials and for overhead. And you won’t receive any payment for those efforts until months after the work is complete.
Fortunately, you have options available. One effective solution is government contract factoring, which allows you to get cash upfront for your government contract so you can pay your vendors and your employees.
Receivable factoring is a funding solution that helps businesses resolve their cash flow challenges. In a standard factoring solution, a business enters into an agreement with a factoring company to provide funding for an unpaid invoice.
The factoring company advances a percentage of the outstanding invoice balance, often 85 percent. The business gets that money immediately and can use it as they wish. The factoring company then collects the payment directly from the government. The factoring company keeps the amount that it advanced plus a small processing fee. The remainder of the payment is forwarded on to the business.
There are several attractive aspects to factoring. One is that you get your money immediately, often within a couple of days.
The second is that the factoring company usually isn’t interested in your own credit history. Rather, they’re more interested in whether your customer will pay in a timely manner. That means that if your business has little credit or even bad credit, factoring can still be an option for you.
Of course, not all factoring companies will make advances on government contracts. They may not have knowledge or experience to properly collect from the government agencies. They may not have the capacity to wait 90 days or more for payment. If you think factoring could be a good solution for you, it’s important that you work with a company who knows how to handle government contracts.
At Gateway Commercial Finance, we have extensive experience advancing on contracts with federal, state, and even local government agencies. We understand their payable procedures and we know how to work with them to collect payment.
In our years of working with government contracts, we have advanced on invoices to many different departments and agencies, including:
Our government contractor factoring program can provide you with between 72 and 90 percent of your invoiced amount within just a few days. We offer competitive rates, sometimes as low as one percent for the first 30 days.
We have also worked with clients in a wide range of industries, including:
If you don’t have cash, you don’t have a business. Cash is that important to your business. It’s your lifeblood. Your government contract should be a foundation of revenue and business upon which you can grow your company. It shouldn’t put a stranglehold on your cash flow and your ability to operate.
Let us help you overcome your cash flow challenges and handle your government contract with confidence. We have the knowledge, experience, and ability to get you the cash you need and also handle the collection effort from the government agency.
Contact us today to get the process started. We welcome the opportunity to help you grow.
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