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Factoring for the U.S. Government Vendor

Factoring for the U.S. Government Vendor. Capital Advantage Funding Putting your assets to work for you…. Agenda. Introduction The Assignment of Claims Act 1986 Equity, Debt or Factoring Win more business Find the factor most suitable for you.

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Factoring for the U.S. Government Vendor

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  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 ActIt 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 Etc…month 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. Traditional Lending Strong Credit Required (Both Business & Personal) Multiple/Varied Collateral Personal Guarantee Cap Strong Restrictions Lengthy Underwriting Numerous Other Fees Often Requires Periodic “Zero Out” Factoring Strong or Multiple Debtors Collateral Only A/R Validity Guarantee Unlimited Availability No Restrictions on Use of Funds Account opens in About 14 Business Days Factoring Fee and Wire Fee Only No Pay-Off Needed Factoring vs. Traditional Loans

  19. Financial StatementStrengthened Financials • Before Factoring Assets Accounts Receivable………………………………………... $1,000,000.00 Cash………………………………….………………………..……. $200,000.00 • After Factoring Accounts Receivable………………………………………….. $200,000.00 Cash……………….………………………………………….... $1,000,000.00 Very Strong!

  20. Benefits of Factoring • Unlimited availability of funds • No debt on your books • No personal and business assets tied up (Just A/R) • No required pay-off periodically • No high interest rates • No numerous and high administrative costs • No restricted use of funds Take Factoring Option

  21. Winning More Business With Factors • Work with a Factor who provides: -Credible financial backing -Working capital -Vast experience in Government protocols -The ability for you to run your business without cash flow concerns

  22. Winning More Business • Work with a Factor who allows the vendor to: (continued) -Bid aggressively -Pay suppliers efficiently -Take early payment discounts from suppliers -Take volume discounts offered by suppliers

  23. Which Factor ……….Is Best For You? • A specialist -in government transactions. -in Assignment of Claims Act -familiar with the U.S. Government and it’s agencies -that can open your account in 12- 14 business days -requiring minimal paperwork -with a seasoned professional staff

  24. Which Factor Is Best For You? • A specialist -that is highly capitalized -that is familiar with non-governmental funding as well -that is known in the government contracting industry -that attends industry events -that stays current with procedures and protocols

  25. Which Factor Is Best For You? Capital Advantage Funding Stephen Shipp, CCFC Tel: 866-200-9797 www.capadfunding.com

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