Contract Factoring: What It Is And How To Start

by Michael Griffin Michael

Contract factoring is a form of asset-based lending where your company sells completed or nearly completed contracts to a third party. If you're at all involved with government contracting, then you know how difficult it can be to get paid on time or in full. Examine the pros and cons of this form of lending, as well as other considerations for getting started with government contract factoring.

What is Contract Factoring?

Contract factoring is a type of financing that allows businesses to sell their receivables (invoices) at a discount in order to receive immediate cash. The buyer of the receivable (the "factor") then assumes responsibility for collecting payment from the customer. Contract factoring can be an attractive option for businesses that need working capital but have difficulty qualifying for traditional loans.

There are a few things to keep in mind if you're considering contract factoring:

- Make sure you understand the fees charged by the factor. These can vary depending on the type of receivable, the creditworthiness of your customer, and other factors.

- Be aware that contract factoring is not without risk. If your customer does not pay the invoice, you may be responsible for repaying the factor.

- Consider whether contract factoring is the best option for your business. There are other types of financing available that may be more appropriate, depending on your needs and situation.

Factors to Consider When Choosing a Factoring Company

There are several factors to consider when choosing a contract factoring company. The most important factor is the experience of the company. You want to make sure that the company has a good reputation and is able to provide the services you need.

Another important factor is the fees charged by the company. You want to make sure that the fees are reasonable and that you are getting value for your money.

The third factor to consider is the customer service of the company. You want to make sure that you are able to get in touch with someone when you need to and that they are helpful and knowledgeable.

Finally, you want to make sure that the company is able to meet your specific needs. Make sure that they offer the services you need and that they are able to customize their services to meet your unique requirements.

How To Begin with Invoice Factoring

If you're new to government invoice factoring, also known as contract factoring, the process can seem a bit daunting. But it doesn't have to be! Here's a quick rundown of how to get started with invoice factoring.

First, you'll need to find a reputable invoice factoring company to work with. This is important, as not all companies are created equal. Do your research and read reviews before choosing one that's right for you.

Once you've found a company you're happy with, the next step is to send them your invoices. They will then advance you a percentage of the total amount, typically within 24 hours. You can then use that money however you see fit - whether it's for business expenses or personal needs.

The final step is simply to wait for your customers to pay their invoices in full. The factoring company will then collect the payment and forward the remaining balance to you, minus their fee. It's that easy!

Invoice factoring can be a great way to get quick access to cash without having to take out a loan or sell equity in your business. If you're struggling to make ends meet or keep up with customer demand, give it a try - you might be surprised at how helpful it can be.