Handling Payment Delays as a Government Contractor

Explore how factoring provides a reliable bridge to ensure consistent cash flow.

Government contracts can be challenging to win and navigate, but they’re also some of the most lucrative and dependable contracts you can have. On this page, we’ll walk you through why you may experience delayed payments and cash flow challenges and how government contractor factoring creates a financial bridge that allows you to bid on, accept, and manage these contracts more confidently.

Navigating Payments in Government Contracting

For the most part, the government must pay contractors on net 30 terms, as Wolters Kluwer notes. This means you’re paid within 30 days or less of submitting your invoice, but it doesn’t necessarily mean you’ll get paid when you expect.

Payment Terms Vary by Contract

As you explore government contract opportunities, pay close attention to the payment timing mentioned. There are many different payment timelines. For instance, some offer progress payments or pay by milestone, in which case you can submit your invoice as soon as you’ve met the requirements or milestones. Others, especially those involving tangible goods, may allow you to submit an invoice immediately after delivery. You’re also likely to see monthly billing terms on service-type contracts. This means that even if you’re promised net 30 terms, you may not get paid within 30 days.  

To illustrate, picture a website development company that wins a bid for designing a new website for a government agency. It’s an expansive project with dozens of professionals that is expected to take a full year.  Rather than paying out only at the end, the developer may have a milestone-based contract that provides payments as the company meets specific goals. Now, imagine it takes the developer 90 days to meet its first milestone, and it sends the invoice right away. Because the government has 30 days to pay, a total of 120 days may pass from the time the business makes its first cash outlay for the project until the day it receives cash.

Public Sector Contracts May Not Always Pay “On Time”

As you can see, this already creates a wide range of payment timelines, but there are lots of other reasons why a net 30 timeline may not always pan out.

Work Disputes

Occasionally, there may be a dispute about whether you’ve delivered services or goods as outlined in your contract. This must be resolved before the invoice is approved for processing.

Incorrect Invoicing

The 30-day timeline only begins when the government receives a “proper” invoice. Although there are many reasons why invoices get kicked back for non-compliance, a few of the most common issues include issues with:

  • Dates
  • Contract numbers
  • Company name and address
  • Contact info for the person receiving the payment
  • Shipping and payment terms
  • Details about the items or services delivered

The government has seven days after receiving your invoice to respond if invoice issues will prevent payment. Unfortunately, businesses can go back and forth quite a bit while issuing corrected invoices, which may further delay the payment.

Payment Delays Can Create Major Issues for Businesses

Many small businesses and startups are dissuaded from bidding on government contracts because they lack the upfront cash necessary to accept these projects, particularly when payment delays are likely.

Effects of Payment Delays

Government contractors experience a variety of issues when payments are slow, such as:

  • Added expenses and time for chasing and resubmitting invoices
  • Inability to cover their own expenses, such as rent and payroll
  • Inability to continue working on the project due to capital needs
  • Inability to seize opportunities due to limited capital

Factoring: The Bridge Over Financial Gaps

Large and established contractors can often tap into loans and lines of credit when accepting bids. However, many are debt-averse and prefer not to. Moreover, liquidity solutions are few and far between for those in the early days of government contracting because they don’t typically meet the history and credit requirements. This is where a solution like factoring can help.

Factoring Solutions Tailored for Government Contractors

Factoring is a unique funding solution in which your business sells its unpaid invoice to a factoring company like Charter Capital at a slight discount. The factoring company immediately pays you most of the invoice’s value and takes over responsibility for collecting the payment. You’re free to move forward without chasing payments or paying a debt back.

How Factoring Works

Factoring is a straightforward process for government contractors.

  • Step 1: Win a government contract and go to work.
  • Step 2: Send copies of the invoice to the government and your factoring company.
  • Step 3: Get paid most of the invoice’s value immediately by the factoring company.
  • Step 4: Keep working and growing your company. The factoring company will follow up on the invoice as needed and send you the remaining sum minus a small factoring fee once the government’s payment comes in.

Eligibility for Factoring

Unlike loans, lines of credit, and other traditional funding solutions, your creditworthiness and time in business aren’t a major consideration for approval. Instead, the factor is more concerned with the creditworthiness of your customers since they’re the ones paying the bill. This means getting approved is very easy if you’re working on a government contract. You may be able to factor invoices for many of your private sector clients, too.

Benefits of Factoring vs. Waiting

There are lots of benefits to leveraging government contractor factoring. We’ll explore a few below.

Immediate Cash Access

Your business receives payment right away with factoring. It’s typically sent as an automated clearing house (ACH) payment, which means it’s sent electronically and arrives in your bank account within 24-48 hours. However, factoring companies like Charter Capital can expedite it even more beyond this and pay you on the very same day you submit your invoice.

Continuous Business Operations

Factoring bridges cash flow gaps so you can cover daily expenses and grow.

Simplified Forecasting

With factoring, you always know exactly when you’ll get paid so that you can budget more confidently.

Planning for Future Contracts

Factoring doesn’t have to be all or nothing. You can dip into it whenever you need to accelerate cash flow. This often opens doors for government contractors as they explore opportunities – you can bid on the projects that suit you and not just the ones that pay out on your ideal timeline.

Bridge Your Financial Gaps with Government Contractor Factoring

If it sounds like government contractor factoring may be what you’re looking for to bridge financial gaps, Charter Capital can help. We offer low rates, up to 100 percent advances, same-day payments, and don’t require long-term contracts. To explore the fit for your business, request a complimentary rate quote.

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