How Government Invoice Factoring Works

Government invoice factoring works nearly the same as most other industries. The biggest difference is the invoices being factored must be collected from the Federal government. Many factoring companies will not purchase government contract invoices. These factoring companies often don't have the expertise or would rather not work with low volume accounts, which government contracts tend to be. Government contracts can be lucrative work for contractors. The problem is when the contractors allocate a large portion of their financial and human resources for a government job that hasn't been paid. For example, the government contract is worth $2,000,000 to a company for selling merchandise to a government agency. The cost for that company could be $1,500,000 to cover worker expenses, production costs, transportation, etc. There is no payment advance and the company may have to wait 30-60 days for payment after the job is complete. This process can create serious cash flow issues not allowing them to purchase, meet payroll, or other operating expenses. An excellent method to circumvent these issues is to sell the government contract invoice to a factoring company. Then use cash obtained to cover your costs or other business expenses. The factoring company will purchase the invoice for a discounted amount and then will begin collections from the government. After they have collected the full balance, they will give the balance to the seller, minus factoring fees. The cash flow can be used to cover business expenses. Businesses will then be able to more confidently go after new jobs and finish jobs in progress. Allowing them to continue to run smoothly instead of having to waiting to be paid by the United States government.