Commercial Invoices versus Government Invoices

It would stand to reason that an invoice is an invoice regardless of whether or not the client is a commercial entity or a governmental agency. This, however, is not the case with invoice factoring. Factoring government invoices requires much more forethought and planning on the part of the business owner than say an invoice to Coca-Cola.

Accounts Receivable Factoring Accounts Receivable Financing

The reason this is true is because of the government regulations required to complete the initial funding requirements are monumental. It is best to go ahead and negotiate the idea of factoring invoices before award of the contract. Doing so will alert the contracting officer ahead of time so that fewer problems arise later on during the fulfillment of your contract to the government.

If however, your company has already been awarded the contract and has begun performing the services required, you may be in for more of a challenge than you'd hoped. It is not a simple matter of faxing the latest invoice off to the factoring agent and waiting on the funding to arrive. Speak to the factoring agent ahead of time about the contract. Additional forms need to be submitted to the contracting agency of the government department you are contracted with. Essentially, a modification must be completed prior to factoring the first invoice. As with most things dealing with government contracting, this process may take several weeks to complete. Be patient and work with both the factoring agent and the contracting agent. It can be worked through for long term results.

Commercial Factoring Discounting Factoring

Another issue to be concerned about with factoring government invoices is the businesses Cage Code. In the paper reduction world of the government only one account is authorized in conjunction with this code. Once the payment is sent it will go directly into that account. Hence, once the factoring has begun for your company and you modify your CCR registration to go directly to the factoring agent, as required by the factoring contract, all government invoices must then be processed through the factoring company. Say, for example, your business was awarded a $1 million contract which required your company to go out and begin accounts receivable financing in the first place. In the meantime, during the life of this big contract, your company continues to sell smaller items to the government. The average invoice amount for these projects is $20,000. After a few invoices under the bigger contract have been funded, you've been able to shore up your reserves to a point where you don't particularly need to factor the smaller invoices, especially at a 3% funding fee of the invoice value. Whether you choose to factor the invoice or not, the payment from the government will still go to the account on record for your business's Cage Code. If the factoring agent has not funded the invoice they will then transfer the funds directly to you. This process will add at least 48 hours to your payment being received.