Contract Financing

In the current economy, businesses are looking for growth by pursuing lucrative government contracts. An essential part of winning and executing a government contract is how you will provide contract financing for the duration of it. Will your suppliers give you terms? Will you be able to meet payroll? How long will it take for the government agency to pay your invoice? Will you be able to complete the project without adequate cash flow? Will you be able to bid on multiple contracts without contract financing?

Factoring is one of the fastest, most flexible means for a business to obtain contract financing to cover working capital needs while having access to funds to support a company’s growth. Advances are made to your business against new or outstanding invoices to provide immediate access to cash. You are paid 70% – 90% of the value of the invoice within 24 hours with the remaining balance paid to you (less a small service fee) once payment is received from your customer. The process can be repeated as new invoices are issued to access cash for financing additional contracts.

Sometimes cash flow issues do not begin until the contract is in progress. Our solutions can help when you start performing on a contract or if it’s already underway. Our contract finance solutions are fast, dependable, and can be put into place at any time during the contract. Whether you are a manufacturer, service provider, supplier or product reseller funding contracts is a simple process by utilizing factoring or accounts receivable financing. By financing contracts you can pursue additional and larger contracts.

Financing contracts by the federal government is different than financing a commercial contract. The Assignment of Claims Act which is a federal law which allows and specifies the procedures for assigning financial rights to invoices of government contractors and allows for payments on a contract to be made to a financial company as a third party. This allows a financial company such as ours to provide contract finance through accounts receivable financing and factoring. This method of funding contracts provides you with working capital throughout the life of the contract.  If you would like to contact us for further information on contract financing, feel free to do so by clicking the link below!

Contract Finance

Often a company’s quickest method to grow to the next level is by obtaining a contract larger than any previous ones it has performed or completed. This method is desirable since it causes natural, moderate growth in a manner where there is experience, history, and a proven track record. These contracts can be with government agencies – federal, state, municipal or with publicly held or private companies. The easiest way to increase a company’s contract volume is to gradually take on more business with agencies or companies with which it’s already conducting business. However, there may be many lucrative contracts with companies or agencies where there is no previous history. In either situation, factoring as a method of contract finance can help.

Contract finance can take many forms. The most traditional and cost effective one is bank financing – term loans, SBA loans, or lines of credit. Unfortunately in recent years credit has tightened and this is not always a viable, obtainable option for small businesses, whether they are established or start ups. There are many types of alternative lenders that offer contract finance – equity partners, angel investors, micro lenders, etc. Sometimes these forms of contract finance can be as difficult to obtain as bank lending and often more tedious with regards to paperwork, investigation, and time constraints both in the time it takes to find and pursue the financing as well as the time it takes to process a contract finance application.

Often times a small business owner will resort to using his or her personal credit cards to finance limited amounts. This method, although a short term fix, can lead to long term ramifications on personal credit therefore blocking any future chance of obtaining contract finance. Although tempting because of availability, it’s best to avoid this.

Factoring remains one of the fastest, accessible and flexible forms of contract finance. With factoring, everything focuses on the invoices being issued on a contract to a creditworthy client. Advances are made to the business as invoices are issued so the owner doesn’t have to wait 30, 60, 90 days to get paid. Since it is not a loan, it does not appear on the balance sheet of a company. By factoring you gain access to your own funds faster.

Advantages of Contract Finance:

Fast – Available in two weeks or less.

Creditworthiness – The credit shifts from the small business owner and company to the creditworthiness of the entity with whom it’s doing business. A factoring company will check the creditworthiness of that entity to give the business owners confidence in their business relationship. This makes it an excellent option for new businesses or start ups.

Alternative to Equity Lending – No ownership or equity stake is sacrificed therefore allowing owner(s) to retain full ownership and decision making abilities.

Cash Flow – The immediate positive effect on cash flow allows the small business to pay its bills faster therefore stabilizing its credit Often vendor early payment discounts can be utilized.

Grows with the Business – There are no limits with this financing as long as invoices are being issued.

Unrestricted Use of Funds – Funds can be utilized for any purpose including payroll, supplier expenses, taxes, marketing and advertising, ongoing expenses, even expenses incurred while bidding on new contracts. The funds can be used as contract finance for other opportunities.

Outgrown Bank Facility – If a company has outgrown a bank facility, factoring can extend credit beyond the original limit, often by paying off bank debt.

No Long Term Commitment – Traditional lending can often extend out for years with tedious monthly payments. Factoring can be set up on a selective basis with no time or volume commitment or ongoing with a minimal time frame and volume amount.

Time Constraints – Frees up valuable management time for owner(s) since credit facility is in place.

Readily Available – Factoring offers a dependable, continuous source of cash to all size businesses without having to reapply for loans or lines of credit or seeking out new investors.

Factoring is an excellent finance tool for any size business to utilize, but especially small, cash constrained businesses.  For contract finance, whether it be one contract or multiple contracts, factoring can readily solve cash flow issues. The contract finance provided on a single contract can support expenses related to that particular contract. If multiple contracts are proceeding simultaneously, one contract can provide contract finance to support another contract. Although it is difficult to time multiple contracts to support this type of contract finance with factoring it is an excellent way to provide start up funds on a new contract.