Understanding Government Invoice Factoring
If you work on government contracts, it is indeed a lucrative business, however, the biggest problem with the same is the long time it takes to get paid for the work done or services rendered. You might be able to generate a big profit on the contract but not until you receive the entire amount. This could take months or even years to accomplish.
You will have to consistently make payments to the labourers, pay rent for the machinery and ensure that the operations run without interruption. No business owner can spend all the savings trying to ensure that the liabilities are met on time. This is where factoring plays a crucial role. It is important to understand the role of factoring government contracts here. When you use factoring on the invoices, you can get funds for an amount which is as high as 90% of the total invoice value and you will not have to wait for 30 days or 60 days or more for the same.
How does it work?
Based on the objectives of the company and the long-term goals of the business, you can contact a factoring company to raise money on the invoice.
You need to make an application with the company in order to get the invoice processed. The only requirement for the same is that the invoices should be from creditworthy parties where there is minimal risk of non-payment or the outstanding turning into bad debt.
The factoring company will verify the invoices and then give you an advance up to 90% of the invoice within one day.
The amount will be immediately transferred to your account and you can use the same for whatever purpose you need to.
After the debtor pays the invoice, the company will release the balance amount to you after deducting a small factoring fee for the services offered.
You can factor as many invoices as you feel like and as often as you feel like.
Is it ideal for you?
If you work on government contracts, you will agree to the fact that the payment terms are extremely long and it will take a lot of time for you to recover all the money. In order to ensure that the work does not come to a halt and you do not end up breaking your bank, you can use factoring. It is an ideal financing option for every type of business owner in the industry. No matter the industry you are working in or the size of business you have, if you have the invoices, you can factor them.
The entire process of factoring is extremely simple and straightforward. The only thing you need to look into is the creditworthiness of the clients. As compared to any other form of borrowing, factoring is cost effective and instant. You can get access to a substantial amount of cash within no time. Estimate the amount of funds you require and approach factoring companies accordingly.