Factoring for government contractors is fairly common. Considering that factoring companies rely on the creditworthiness of the account debtor (customer) it makes the approval process certain. The factor does not have to worry other than to insure the particular Agency has a funded budget in place. We have seen situations where an Agency is trying to push through a contract prior to actually having an approved budget. These are usually situations where an existing contract is overlapping a fiscal year.
From our standpoint, we offer the government contracting firm the ability to aggressively go after more awards knowing that we stand behind them, ready to supply the necessary working capital to perform on a contract. Not only that, we will supply a letter to be included in a solicitation application. It states that your company has already secured the available credit in order to fulfill the requirements.
Once you have been awarded a contract, the CO will sign off on milestones or time sheets and the invoice is submitted. The advance we wire into your bank account which is used usually to pay labor and payroll taxes etc. With ongoing contracts this process will not disrupt the daily operations.
Factoring as a tool for government contractors is best used when the contracts are getting larger and coming in overlapping waves. The worst decision a contracting company can make is to go it alone and get behind on their 941 payroll tax obligations. The door to capital starts slowly closing until it is shut completely leaving you in the dark.