Government agencies often take 60 days to pay approved invoices despite the Prompt Payment Act. These long waits force contractors to cover heavy costs without any cash coming in.
Accounts receivable financing for federal contractors provides cash for approved government invoices while you wait for the agency to pay. Programs like Revenue On Demand bridge the 60-day gap common in federal work by getting your cash in days instead of months. While traditional banks often hesitate to fund unique government invoices, this model uses your unpaid bills as a tool for growth. You can cover payroll, pay subcontractors and fund new projects without taking on new debt or giving up equity. By choosing selective funding, you can decide which invoices to finance based on your cash needs. This approach keeps your business moving forward as you work through the complex federal payment cycle and focus on your next win. It provides the cash flow you need to scale without the limits of a bank loan.
Talk to a Now specialist to learn how accounts receivable financing for federal contractors can keep your cash flow steady and your business growing.
Managing a government contract requires careful planning and a deep understanding of the payment system. You must work through complex rules and long delays while meeting daily costs. To find a better way, the path begins with Why federal contractors face unique cash flow challenges.
Accounts Receivable Financing For Federal Contractors: Why federal contractors face unique cash flow challenges
Working with federal agencies often brings stable, high-value work. But the gap between finishing a job and getting paid can strain any business. While federal laws try to speed up payments, most firms still face long wait times. This gap forces many teams to look for accounts receivable financing for federal contractors to keep their work moving.
The limits of the Prompt Payment Act
The Prompt Payment Act sets rules for how fast agencies must pay their bills. In most cases, the law requires payment within 30 days of getting a proper invoice. However, the real-world window is often much wider. Many firms find that 45 to 60 days is the actual standard for getting funds. These delays happen because of complex agency workflows. Even a small error on an invoice can reset the clock, leaving you to wait weeks longer for your money.
The Bureau of the Fiscal Service reports that agencies must pay interest on late payments. But this interest rarely covers the cost of a cash shortfall. During these 60-day windows, you must still cover payroll and overhead. You might also have to pay subcontractors before you get your own payment. This creates a cycle where your cash is trapped in unpaid bills while your costs continue to rise.
Banking hurdles for specialized firms
Traditional banks often struggle to support government contractors. Most banks use a rule that limits how much they will lend against a single customer. If one customer represents more than 20% of your total receivables, many banks will not finance those invoices. This is a big hurdle for firms that primarily serve one or two large federal agencies. Since your revenue is tied to the government, a bank may see your business as too risky.
Banks also tend to prefer performance-based payments. Lenders are often willing to advance 80% to 90% of an invoice amount if it is tied to a clear goal. But they may only lend up to 50% for costs that you have not yet billed. This leaves a big gap for firms that have high upfront costs. Without a flexible way to get capital, you may have to turn down new work because you cannot afford the start-up costs.
Payroll and overhead during payment gaps
Keeping a steady workforce is vital for government work. You must pay your staff on time to keep your work on track and follow labor laws. If a payment from an agency is late, you cannot simply stop paying your team. This pressure is even higher for firms with security clearances or niche skills where talent is hard to find. You have to find the cash to meet every payroll cycle, even when your bank account is low.
General costs like rent, utilities, and software fees do not stop during payment delays. These fixed costs eat into your funds while you wait for the government to process your invoices. For many firms, the standard 45-day wait becomes a test of survival. Using a financing partner can help bridge this gap. It lets you get your revenue right away so you can focus on growth instead of managing a cash crisis.
Traditional accounts receivable financing options for government contractors
Traditional accounts receivable financing for federal contractors comes in several forms, each with distinct trade-offs. Understanding how factoring, bank asset-based lending, and government-provided financing compare helps you pick the right option for your situation.
| Feature | Invoice Factoring | Bank Asset-Based Lending | Government Progress Payments |
|---|---|---|---|
| Advance rate | 70-90% of invoice value | 80-90% on performance-based | Up to 80% on progress |
| Agency notification | Required under the Assignment of Claims Act | Typically required | N/A (built into contract) |
| Reserve holdback | 10-20% held until payment | Varies by collateral pool | None |
| Cost structure | 0.69% to 3.5% per 30 days, may compound | Interest rate + fees, FAR-allowable | Built into contract terms |
| Speed of funding | 24-48 hours per invoice after setup | 3-5 days for setup; ongoing draw requests | Per contract payment schedule |
| Contract types accepted | Delivered invoices only; no advance/progress | Performance-based preferred; limited on progress | Specific to contract clause |
| FAR cost allowability | Factoring fees generally unallowable (FAR 31.205) | Interest on credit lines unallowable | Contractual, typically allowable |
| Collections control | Factor takes over collections | Borrower manages | Contractor manages |
How invoice factoring works for government contractors
Invoice factoring lets you sell your government invoices to a third-party company called a factor. The factor advances 70% to 90% of the invoice value right away. When the government pays, the factor sends you the remaining balance minus their fee. For federal contractors, this process is governed by the Assignment of Claims Act, which specifies how financial rights to government invoices can be assigned.
Several companies serve the government contractor factoring market. 1st Commercial Credit offers government receivable financing with rates from 0.69% to 1.59%, with setup in 3 to 5 working days and facilities from $10,000 to $10 million. eCapital explains that contract financing involves three parties: seller, buyer, and factor, with advances typically up to 90% of invoice value. They fund facilities from $5 million to $250 million.
One key consideration: factoring fees are generally unallowable under FAR 31.205, similar to interest on a line of credit. Your factor should be able to total the fees and provide a cost estimate for a sample invoice so you understand the full cost before committing. Prime contractors are also bound by the FAR to pay subcontractors within 5 days of receiving payment from the federal government. Which can create added pressure on your cash flow.
Bank asset-based lending limits
Banks that understand government receivables can offer asset-based lending at better rates than factoring. But they face real constraints. Most banks will not lend against advance payments where work has not yet been performed. Progress payments are also difficult because the bank would be at risk if the contractor cannot fulfill the task. Performance-based payments, tied to completed work or shipped products, are the most bank-friendly, with lenders willing to advance 80% to 90% of the invoice amount.
For amounts not yet billed, experienced banks may lend up to 50% of costs expended plus estimated profit. However, the contractor typically has to request these advance rates, as banks rarely offer them proactively. The FAR Part 32 covers the process to obtain contract financing from the government, while FAR Part 52.232 discusses various payment methods. Banks outside the Washington, D.C. area may lack specialized government receivable units, making it harder to find a lender that understands the complexities of federal contracting.
How Revenue On Demand differs from traditional government receivable financing
Federal contractors often look for ways to cover payroll while waiting for agency payments. While banks and factors are common choices, they often come with debt or complex rules. Revenue On Demand from Now offers a different path that gives you full access to your funds without the typical strings of a loan. Since 2010, Now has funded $16 million in government contracts through Now for firms like Project Services Group.
A simple flat fee with no debt
Traditional bank lines of credit and loans create debt on your balance sheet. They also charge interest that can compound over time. Revenue On Demand is not a loan and does not create debt. Instead, you get paid immediately for work you have already done. Now uses flat-fee pricing based on when your customer pays. You pay 2.75% for net-30 terms, 5.25% for net-60, or 7.50% for net-90. There is no interest and the fee does not grow if the government pays a few days late.
Full liquidity without reserve holdbacks
Most factoring firms keep 15% to 20% of your invoice in a reserve account until the government pays. This means you only get a part of your money upfront. Now provides 100% liquidity immediately. If you have a $100,000 net-30 invoice, you get $97,250 right away. This allows you to use all your cash to grow your business or meet federal cost rules under FAR 31.205.
Preserving your customer relationships
Many factors require you to notify the government that you sold your invoice. They may even take over your collections. This can change how the agency sees your firm. Now uses a non-notification model where you stay the biller of record. You collect payments as you always have. Now also takes on the customer-pay risk through a non-recourse model. Unless there is fraud or bad faith, Now absorbs the loss if the agency fails to pay due to insolvency.
| Feature | Revenue On Demand | Traditional Factoring | Bank Line of Credit |
|---|---|---|---|
| Structure | Off-balance-sheet payment | Sale of asset | Debt obligation |
| Advance Rate | 100% of invoice value | 80% to 90% (with reserves) | Varies by collateral |
| Notification | None (stay biller of record) | Required (government is told) | None |
| Cost Model | Fixed flat fee | Service fee plus interest | Compounding interest |
| Recourse | Non-recourse (Now takes risk) | Usually full recourse | Full recourse |
This selective model lets you choose which invoices to fund. You are not forced into an all-or-nothing deal. This flexibility helps you manage cash flow during peaks without long-term ties. Federal law under the Assignment of Claims Act and FAR Part 32 governs how these payments work. Now makes this process simple so you can focus on your contract goals.
What to look for in a government contractor financing partner
Choosing a partner is a key move for federal firms. The right partner helps you fill the gap between finishing work and getting paid. They do this without adding debt to your books. You should look for a firm that knows the rules of government work. Look for terms that protect your client ties.
Check fee structure and rules
The cost of cash is a top goal when you choose a funding source. Old-style factors often use growing rates. These rates get bigger if the government pays late. In contrast, Now offers flat-fee pricing through its Revenue On Demand model. For example, a $100,000 net-30 invoice costs a single fee of 2.75 percent. This means you receive $97,250 right away.
You also need to check if fees are allowed. Per the Federal Acquisition Regulation (FAR) 31.205, most factor fees are not allowed costs. They are like interest on a bank loan. Choosing a partner with a clear fee plan makes it easier to track your gains. It helps you stay in line with federal rules.
Look for non-notification and reserve terms
Many financing firms need you to tell the government that your invoices have been given to them. This can start the Assignment of Claims Act. It may change how your client views your firm. A partner that does not tell your client lets you stay the biller. This keeps your customer ties intact.
- Review the fee structure. Look for flat fees instead of growing interest. Growing rates can quickly eat your gains if a client takes 60 or 90 days to pay.
- Check notification rules. Some partners need you to tell the client about the funding. Others, like Now, offer models where you collect payments as usual and keep your financing private.
- Assess advance rates and reserves. Old-style factoring often holds 10% to 20% of your invoice value in a reserve account. You should seek a partner that gives 100% cash so you can use all your revenue right away.
- Confirm accepted contract types. Make sure the partner accepts the types of contracts you hold. Most firms prefer delivered invoices for goods or services. Some may have strict rules for progress payments.
- Review speed of funding and setup. Federal firms often need cash fast to cover payroll. Some providers can set up an account in three to five days. They can fund invoices in as little as 48 hours once they are approved.
Choose a partner with federal expertise
A strong partner should have a track record of success with federal clients. Government work rules are complex. You need a team that knows how to handle them. For instance, Project Services Group has funded $16 million in government contracts through Now. This type of skill shows the partner can handle the size and work of federal deals.
Real results: how government contractors use financing to grow
Many founders find that winning a big contract is only the first step. For federal contractors, the time between doing the work and getting paid can create a cash flow gap. Using accounts receivable financing for federal contractors helps close this gap. This is vital because a government shutdown contractor cash flow crisis can stop work for weeks. It allows firms to pay their staff and buy tools while they wait for the government to pay. This funding model turns open invoices into cash that can be used right away.
The Project Services Group story
One clear case of growth is Project Services Group. This firm manages about $2 million in annual volume. Around 80% of their work comes through the federal System for Award Management (SAM) portal. By using Revenue On Demand, they have funded $16 million in government contracts through Now. This cash flow let them take on more projects without taking on debt.
The firm could focus on their work instead of worrying about bank limits. Many banks will not fund a single client that makes up a large part of your total sales. But the government is often a main client for small firms. Now looks at the credit of the government agency rather than just the contractor. This approach gives small firms the same power as much larger rivals.
Scaling with a proven partner
Now has a long history of helping firms succeed. Since 2010, the firm has funded more than $1 billion to over 1,000 firms across the country. Government contractors are a main focus for Now. The team knows the rules that apply to federal work. This includes rules like FAR Part 32 which covers contract financing.
Choosing the right partner can change how a business grows. Working with Now offers several key gains:
- Access to cash within days of sending an invoice
- No debt on the balance sheet since it is not a loan
- Flat fees that stay the same without hidden costs
- The power to keep your own billing process in place
Taking on larger contracts
Growth often requires a big jump in spending. A contractor might need to hire 10 new people or buy new gear to start a new project. If they have to wait 60 days for their first payment, they might run out of cash. Accounts receivable financing for federal contractors gives firms the safety net they need to bid on larger jobs. They can say yes to new work because they know the cash will be there to cover costs.
By using Revenue On Demand, contractors can scale at their own pace. They do not have to give up part of their business to get funding. They also do not have to worry about high interest rates that eat into their profits. This path helps them stay strong and win key contracts against larger rivals.
Frequently asked questions
What is accounts receivable financing for federal contractors?
Accounts receivable financing for federal contractors is a funding method where contractors receive immediate cash against unpaid government invoices. Instead of waiting 30 to 90 days for the government to pay, a financing provider advances a percentage of the invoice value upfront. It can be structured as factoring where the invoice is sold. Or as a non-recourse model like Revenue On Demand where the contractor keeps control of the customer relationship.
How is government receivable financing different from traditional factoring?
Traditional factoring typically involves selling invoices at a discount with the factor taking over collections. Government receivable financing can differ. Models like Revenue On Demand let contractors stay the biller of record, maintain customer relationships, and choose which invoices to fund selectively. Traditional factoring usually holds 10% to 20% in reserves, while newer models may advance 100% of invoice value minus a flat fee.
What challenges do banks face when financing government receivables?
Banks face several challenges including the Assignment of Claims Act which requires specific procedures for assigning payment rights. Most banks will not finance a single customer that exceeds 20% of total receivables. Government contracts also contain FAR regulations that can complicate claims. Advance and progress payments are viewed differently from performance-based payments.
How fast can federal contractors access funds through invoice financing?
Funding timelines vary by provider. Traditional factoring setups typically take 3 to 5 business days with 24 to 48 hours per invoice after that. Providers like Now can advance funds within 24 to 48 hours after invoice approval. Some companies offer funding in 2 to 3 business days for qualified borrowers.
What types of government contracts qualify for receivable financing?
Federal agency contracts are the most commonly financed. These include Department of Defense contracts, civilian agency agreements, and prime contractor arrangements. State and local government invoices may also qualify depending on the agency and jurisdiction. Performance-based contracts with completed deliverables are preferred since lenders are more willing to advance 80% to 90% against completed work.
Get your government revenue on your timeline
Waiting 60 days for the government to pay your invoices should not slow down your growth. Now helps federal contractors access their revenue within days instead of months. With flat-fee pricing, no reserve holdbacks, and a non-notification model that preserves your customer relationships, Revenue On Demand is built for the unique needs of government work.
Talk to a Now specialist to learn how accounts receivable financing for federal contractors can keep your cash flow steady and your business growing.