Factoring for the U'S' Government Vendor

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Factoring for the U'S' Government Vendor

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The Assignment of Claims Act 1986. Equity, Debt or Factoring. Win more business ... The Contractor or its assignee may assign its rights to receive payment due as a ... – PowerPoint PPT presentation

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Title: Factoring for the U'S' Government Vendor

1
Factoring for the U.S. Government Vendor

Capital Advantage Funding
Putting your assets to work for you

2
Agenda

Introduction
The Assignment of Claims Act 1986
Equity, Debt or Factoring
Win more business
Find the factor most suitable for you

3
The Assignment of Claims Act (52.232-23 Jan
1986)

How does U.S. Government law
provide you with financial options?
Created in 1986
Overview
Purpose Why it was written
Who benefits
Established procedures

4
The Assignment of Claims Act It is in
your existing or future Contract

C-1. 52.212-4 Contract Terms and Conditions
-- Commercial Items (Oct. 2003)
(a) Inspection/Acceptance. The Contractor shall
only tender for acceptance those items that
conform to the requirements of this contract. The
Government reserves the right to inspect or test
any supplies or services that have been tendered
for acceptance. The Government may require repair
or replacement of nonconforming supplies or
re-performance of nonconforming services at no
increase in contract price. The Government must
exercise its post-acceptance rights --
(1) Within a reasonable time after the defect was
discovered or should have been discovered and
(2) Before any substantial change occurs in the
condition of the item, unless the change is due
to the defect in the item.
(b) Assignment. The Contractor or its assignee
may assign its rights to receive payment due as a
result of performance of this contract to a bank,
trust company, or other financing institution,
including any Federal lending agency in
accordance with the Assignment of Claims Act (31
U.S.C.3727). However, when a third party makes
payment (e.g., use of the Government-wide
commercial purchase card), the Contractor may not
assign its rights to receive payment under this
contract.
(c) Changes. Changes in the terms and conditions
of this contract may be made only by written
agreement of the parties.
(d) Disputes. This contract is subject to the
Contract Disputes Act of 1978, as amended (41
U.S.C. 601-613). Failure of the parties to this
contract to reach agreement on any request for
equitable adjustment, claim, appeal or action
arising under or relating to this contract shall
be a dispute to be resolved in accordance with
the clause at FAR 52.233-1, Disputes, which is
incorporated herein by reference. The Contractor
shall proceed diligently with performance of this
contract, pending final resolution of any dispute
arising under the contract.
(e) Definitions. The clause at FAR 52.202-1,
Definitions, is incorporated herein by reference

5
The Assignment of Claims Act It is in
your existing or future Contract

(b) Assignment. The Contractor or its assignee
may assign its rights to receive payment due as a
result of performance of this contract to a bank,
trust company, or other financing institution,
including any Federal lending agency in
accordance with the Assignment of Claims Act (31
U.S.C.3727). However, when a third party makes
payment (e.g., use of the Government-wide
commercial purchase card), the Contractor may not
assign its rights to receive payment under this
contract.

6
The Assignment of Claims Act (52.232-23 Jan
1986)

Why does the U.S. Government endorse factoring?
Evens the playing field
Expands vendor base
Induces private sector to offer funds
Provides guidelines and prescribed method to do
business with the government
Specific aid to set asides, 8A, SDVOB, HUB Zones,
minority companies

7
The Three Ways to Fund YourBusiness

Equity Sell Your Ownership
Debt Sell Your Credit Worthiness
Factoring Sell Your Asset (A/R)

8
Equity, Debt or Factoring?

Equity
-SEC regulations
-Sell stock or ownership in your business
-Find an interested buyer
-Could cause harmful liquidation ratios
-Decreases control
-Raises Cash
-No debt, no repayment responsibilities

9
Equity, Debt or Factoring?

Debt (Loans)
-Strong financials (personal/business)
-Limits future borrowing availability
-Generally high interest rates
-High administrative and transaction fees
-Limited in amount
-Encumbers ALL assets both business
and personal

10
Equity, Debt or Factoring?

Factoring
-No Start-up fees
-Not Debt
-No loss of equity
-No loss of control
-No balance sheet entry
-Unlimited availability
-Only A/R encumbered

11
Equity, Debt or Factoring?.continued

Factoring
-No high interest charges
-Discount fee only, similar to discounts given
to a cash or 10 day payor
-Highly Flexible
-Programs are compatible with the way the
government does business

12
Understanding Factoring

Factoring is not a Loan! ! !
Factoring Defined.
Factoring is a commercial funding strategy in
which a business sells all or some of its
accounts receivable in order to provide steady,
predictable cash flow. The receivables are sold
at a modest discount similar to the discount
offered by vendors to their customers for cash or
quick payment.

13
Understanding Factoring. The Process

Invoices purchased in 2 installments
-advance
-reserve
Advance- up to 80 within 24 hours of invoice
verification
Reserve-government has paid and the balance goes
to vendor less discount fee

14
Understanding Factoring.. The Process

Invoice........... 1000.00
Advance...800.00
Invoice is paid in 21 days,
Reserve balance...200.00
Typical Fee for 21 days
outstanding(.00089 daily)... (18.69)
Net reserve paid to vendor....... 181.31
Total paid for invoice...981.31
Total discount
on sales................18.69/1000.00
1.869

15
Understanding Factoring

Once the reserve portion in the cycle of
payments activates, the vendor is receiving
95-98 of revenue monthly

16
Understanding Factoring

Month Month
Month Month
Month
-1- -2-
-3- -4-
-5-
80 80
80
20
20
20
From Month
From Month Etcmonth after month
- 1-
-2-
(Less Fees)
(Less Fees)

17
Understanding Factoring

Annual Sales..360,000.00
Discount on Sales (6,728.40)
Net Sales...353,271.60
Gross Annual Discount on Sales....1.869
After Tax (35 rate) Discount on Sales.
1.21....1.21....1.21....1.21
The cost of factoring is always reflected as a
percentage of sales, just as early pay or volume
discounts appear on your financials. It will
never appear as an interest expense or debt
instrument.

18
Factoring vs. Traditional Loans