Why Consider Factoring when Financing Your Government Contract?

If your business is one that does a lot of work with the government, then you may have run up against some hefty competition with other businesses as you each try to gain the best jobs. Once you have earned the government contract, you will be guaranteed that work for as long as the contract is open. There are some disadvantages to working for the government, however, and one of the biggest is that you may not get paid until a month or two after you have completed the job and turned in your invoice. One great solution to this problem is called factoring.

For a new company or a small business, working for several months without any incoming payments, and surviving, can be nearly impossible. These businesses simply do not have the option of waiting to get paid. Unfortunately, the age or size of the business can also prevent it from getting a traditional loan from the bank. However, the bills must still be paid and so must the employees. If this situation sounds familiar, then consider the benefits of factoring your government contract.

A basic description of how this process works involves selling the paycheck that hasn’t yet been received from the government to a factor, or a company that provides this service. It means that your small business will get the majority of your expected payment. When the check does come in, it will go the company that purchased it. In many cases, the factor (the company that purchased your check) will take over the responsibility of collecting the payment. With cash in hand and an experienced company handling the collections, you might feel a great deal of relief.

In the process of factoring, a reserve will be generated. This is the difference between the original amount that the government contracted to pay and the amount that the factor gave you at the time of the purchase. Once the factor has received the payment from the government, they will deliver the reserve to your business, minus the agreed upon amount of their fees. This situation is a win for everyone concerned.

The government has a reputation for acting slowly in many situations, but especially when it comes to delivering payments. Your small business could suffer quite a bit while waiting for that paycheck to come in. On the other hand, if you consider factoring your government contract, you might find that your options have opened up. You can tackle the secure government contracts and have the money that you need to keep your business operational.

See more on Durham’s Government Contract Factoring!