The recent government shutdown has affected thousands and perhaps hundreds of thousands of government employees and contractors. While government employees will receive back-pay for their time-off, many government contractors won’t get paid and they’ll entirely miss out on the lost revenue due to the shutdown. So the largest impact will be felt among the thousands of small businesses that perform government contractor services.
Government contract factoring could be a simple solution for some government contractors in certain situations. Some contractors are trying to cope with the sudden shock to their cash flow as their products and services to the government have completely stopped. In some situations, there are no federal employees available to approve completed contract work or to make payments. Contract employees who work directly with government employees can’t go to work if the building is shut down.
Most of what’s getting a lot of attention is the federal employees, but when the government opens back up, they get back pay. Government contractors won’t get paid for the lost time and revenue. They’re getting overlooked.”
Invoice factoring for government invoices pays government contractors for services performed or goods sold that have already been invoiced. Invoice factoring is a very attractive solution for businesses that don’t wait the 30 to 60+ days to collect their receivables from the government. A government factoring company will step in and buy the receivables for an upfront cash advance. The advance can be as much as 90% of the invoice, less the factoring fees which can run anywhere from 2 to 5% depending on several factors. The factoring company collects the outstanding invoice from the government. The remaining balance of the invoice is then remitted to the government contractor.
The government factoring process could soften the cash flow crunch caused by the shutdown. Factoring can help businesses that have invoiced the government for completed services, but haven’t received payment due to the shutdown. If a contractor has a fresh invoice that is sitting in the government’s payment system, a factoring company can purchase that invoice and send them cash immediately. Factoring companies can approve and setup a new client in a week or two, so it’s possible that contractors could get paid now for those receivables sitting on their books.
Government factoring can also help businesses when the government reopens. Contractors can setup a factoring relationship now, so that when the government reopens, they can factor invoices they generate shortly thereafter. Getting paid quickly on those invoices will soften the wait for government payments in the future.
Government contractors that are interested in factoring their receivables should look to factoring companies that specialize in government contract factoring. Many of the factoring companies in the U.S. are capable of factoring government invoices, but there are specific government regulations called the Federal Assignment of Claims Act (FACA) that govern the assignment of payments related to government contracts.
Most factoring companies don’t factor a single transaction or invoice, rather they usually provide factoring services for new or established clients that intend to factor invoices for a period of time, usually 6 months to a year. This may not be an issue for many government contractors, since the sudden cash flow shortage won’t be resolved in a month or two. Government factoring is a great working capital solution even when the government isn’t shut down!
Mazon Associates is a Dallas factoring company that serves many industries including staffing, oilfield services, business services and transportation. The friendly folks at Mazon Associates are professional and take an interest in each of their clients.
To discuss your invoice factoring needs, please call Lisa Hultz of Mazon Associates at 800-442-2740. Lisa is the sales and marketing representative for Mazon Associates.