What Is The Difference Between Government Contract Financing And Government Invoice Factoring
by James Parker, LEONID Co-Founder
As a government contractor, you know that securing financing can be a challenge. With long payment cycles and strict regulations, traditional lending options may not be the best fit, or even available, for your business. That’s where government contract financing and government invoice factoring come into play. In this article, we’ll break down the key differences between these two financing options and explain why LEONID is the best choice for government contractors looking for financing.
What is Government Invoice Factoring?
Government invoice factoring is a type of financing option that allows government contractors to sell their unpaid invoices to a third party at a discount. Essentially, a factoring company advances you a portion of the invoice amount and then collects payment from the government agency on your behalf. As a result, the factoring company takes on the risk of non-payment, and you get access to the funds you need when you need it, in order to keep your business running.
What is Government Contract Financing?
Government contract financing is a specialized form of financing that is specifically designed for government contractors. Unlike invoice factoring, contract financing is not based on the value of your unpaid invoices. Instead, it is based on the value of your current and upcoming approved contracts. A government contract financing company will review your agreement and provide you with financing based on the estimated revenue you will generate from that contract. This means that you can immediately access the funds you need before submitting any milestones or deliverables to the government agency.
Key Differences Between Government Invoice Factoring and Government Contract Financing
Government Invoice Factoring
- The business sells its outstanding invoices to a third-party factor at a discount.
- Factoring company advances between 80-90% of the invoice value.
- The Factoring Company collects payment from the payor (in this case, the government)
- Once payment is received, the factoring company remits the remaining balance to the business minus a fee for their factoring services.
Government Contract Factoring
- It is a business loan or a line of credit based on the future earnings of a government contract.
- Government Contractors can receive up to 50% of the remaining contract value.
- As the contract is paid, the loan is paid down, and the government financing company remits any remaining balances back to the business.
Why Government Contractors Need Specialized Financing
Government contracting is a unique business with its own set of challenges. For example, government agencies often have long payment cycles, making it difficult for contractors to manage their cash flow. Additionally, government contracts are subject to strict regulations, and compliance requirements must often be met.
Finally, the risk of cancellation keeps most traditional players from offering a solution to government contractors.
A specialized financing company like LEONID understands these challenges. As a result, they can provide the tailored financing solutions that government contractors need.
Why LEONID is the Best Choice for Government Contract Financing
LEONID is a specialty finance company that offers government contract financing. This means that we have a deep understanding of the unique needs of government contractors and can provide tailored financing solutions that meet those needs. Additionally, our financing is based on the estimated revenue from your contracts, which means you can immediately access the funds you need before getting on the deliver–invoice–collection hamster wheel.
As a government contractor, securing financing can be a challenge. Government invoice factoring and contract financing are two financing options that can help. Both have their differences, yet both are options to help with your capital needs.
Figuring out which option can better suit your business is essential. LEONID specializes in helping government contractors solve their financial needs.
Contact us today to learn how we can help you grow your business.