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A Guide to Factoring Government Receivables

A Guide to Factoring Government Receivables

If you are a government contractor you may find it difficult to continue on to the next project before you have received payment from your government clients. The reality of dealing with government contracts is that it can often take a significant amount of time to get your open invoices paid in full – with the lengthy processes involved it can make it difficult for a contractor to operate their business without a positive flow of income. Receivables factoring can help a company keep their operations running smoothly without the interruption that a lack of funds can cause.

Understanding What Factoring Government Receivables Is

When a business finds itself with a significant number of open invoices it might prove to be difficult for the business to continue on with normal operations; the company could spend much in the way of time and resources to keep tracking down the owed funds – or they could sell the open invoices (receivables) to a factoring agency that is equipped to devote the time and resources to getting the invoices paid off in full by the government agencies. While it is true that the majority of government entities are financially sound, the intense bureaucratic red tape that often accompanies the justification and verification of incoming invoices can mean that invoices are left open long past their 30-day or even 90-day terms.

When the factoring company purchases the government receivables from the original company they do so at a discount which will allow them to provide a rapid infusion of cash to the business that would otherwise be struggling to keep operations running smoothly. Once the factoring company has received payment in full from the government clients, the difference between what they paid for the invoices and the money received in is their profit.

Factoring government receivables can prove to be a very profitable venture for a company that is equipped with the resources to collect on the open invoices.

When Factoring Government Receivables Is Not An Option

Despite the validity of the debt, there may be certain circumstances which will make it nearly impossible for a business to sell their open invoices to a factoring company. These include the following:

  • The accounts have already been pledged as collateral to another financial institution
  • The government entities have not accepted the invoice as being valid
  • The projects were not verified as being completed

The Benefits Of Factoring Government Receivables

The most immediate benefit of factoring receivables is that the company selling their open invoices can get an almost immediate infusion of much needed cash – helping them to avoid the need to wait months for the invoices to be paid.

Another positive aspect of factoring government receivables is that companies can avoid the need to apply for a business loan with their financial institution. While it is true that a business could find it to be much more profitable to take on a loan than to sell their receivables at a discount, it is not that easy for a struggling business to get a bank to give them a business loan that will allow them to remain steady on their feet.

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