Many Americans who fully understand that the Federal Government spends billions of dollars each year to run the country, do not fully understand that any “Government Ready” Business can bid on contracts with the Federal Government with very little working capital.

So the question is, how did they start out with very little investment and in some cases, poor credit?

The biggest factor in using someone else’s money to finance your deal with the federal government has to do with the Assignment of Claims Act that Congress passed in 1986 (31 U.S.C.3727) This act states that a “Contractor, or its assignee may assign its rights to receive payment due as a result of performance” to a financing institution. This is what we call the assignment of invoices., known as factoring or accounts receivable financing.

What the government did, was encouraged government contractors to acquire working capital through factoring. Factoring is the selling of your invoices for immediate working capital, rather then waiting 30, 60 or 90 days for the customer to pay you.

Financing companies who handle government contracts are familiar with the procedures to have invoices assigned to them and therefore they are comfortable with providing up 80 – 90 percent of the invoice to the contractor, immediately, once the paperwork is completed.

The Assignment of Claims Act enables government contractors, small business owners, minorities, women and veteran owned businesses to bid on project after project with full confidence that they could handle the cash flow, because of factoring.

Factoring is not available on all government contracts. For instance, it is difficult, but not impossible to find a Factor for construction factoring. And some Factors don’t like to finance contracts until after the work is completed and the government has been invoiced. In other words, there is a difference between financing invoices and financing a job that is not yet completed.

The secret to allowing someone else to finance your deal has a lot to do with what service you are providing for Uncle Sam. Example: Lets say you are providing 100,000 widgets to the Department of Defense. You locate a US company that makes the widgets and ask them for their lowest bid. You may or may not include them as a partner in the deal, but rather as a vendor for you. You bid on the job, you win the bid. Because you don’t have adequate working capital, you have already contacted an Accounts Receivable Specialist who has located, at no cost to you, Purchase Order Financing (PO Funding) and Accounts Receivable Financing. And once you complete the paper work, both of the Financing Institutions agreed that the deal is a go.

The PO Financing pays the manufacture, and the Accounts Receivable Financing provides you with up to 92 percent of the total invoice that the US Government owes you. Both of these transactions must coincide with each other.

Small business and large businesses are bidding on jobs, winning the contracts and repeating the process until their experience enables them to be the lowest bidder, and still show a profit.

In fact some companies open up entirely different division of their company just to accommodate government contracts that no one else is bidding on!

The answer is yes, Uncle Sam is contributing to the profit margin of small businesses owners throughout the US.

By: Cassandra Ingraham