Public factoring is a recommended solution for offsetting the typical delays in payments from government agencies.
Working with them offers your company significant advantages. In particular, it provides the opportunity to secure large contracts and project an image of quality and reliability in the market.
The downside is that payments are received over the long term, which puts your accounting and cash flow at risk.
1. How do public administrations typically pay their suppliers?
Government payments in Spain are regulated by Law 9/2017, dated November 8, on Public Sector Contracts. According to this regulation, the maximum payment terms are:
– 30 days to approve the certifications and deliveries included in the contract.
– 30 days to pay following initial acceptance.
Therefore, payment can take up to 60 days. However, in practice, the average payment period for government contracts exceeds 61 days because, unfortunately, some agencies take longer than the legally established deadline.
Another factor complicating this situation is that public procurement contracts are often complex and long-term projects that require upfront investments before they can be carried out. For example, purchasing raw materials and subcontracting partners. As a result, not only must companies frequently deal with these payment delays, but in the meantime, the proper execution of the project requires continuous investment in stockpiling.
The upside is that, in most cases, the final payment is guaranteed. Unlike in the private sector, the risk of non-payment is practically zero. This is an advantage that encourages professional collaboration with these institutions.
Working with the public sector therefore means accepting that payments from the government will take time to arrive. Consequently, if you work with these agencies on a recurring basis, you’ll need to adopt solutions that protect and safeguard your business’s liquidity. Public factoring is currently the best of these solutions.
2. Public factoring: the solution to this problem
Delayed payments require your company to be in excellent financial health or, failing that, to seek alternative financing options.
Also, keep in mind that while your business resources are focused on a large-scale public contract, your attention to other projects will be reduced. In other words, there will be a natural delay in collecting payments for other services rendered.
Consequently, working with government agencies sometimes means:
– Receiving payment later.
– Making upfront investments.
– Temporarily reducing incoming revenue.
– Facing liquidity and cash flow pressures.
3. What Is Public Factoring?
To prevent late payments from government agencies from hampering your business operations, you need to find flexible and affordable financing. Generally speaking, the ideal solution is to collect payment on those outstanding invoices from public institutions before they are due.
If you find yourself in this situation, factoring is the financial tool you need. It will provide your business with immediate liquidity.
What does this service entail?
You sign a contract transferring the invoices you’ve issued, and the entity purchasing them pays a lower amount, thereby earning a return on the investment.
In other words, you assign the outstanding invoices to obtain immediate cash. In exchange, you forfeit a small percentage of their value, as is the case with any financing service.
Public factoring, specifically, focuses on advancing payments on invoices from the government. This way, you’ll improve your liquidity ratios and avoid headaches, stress, and cash flow imbalances.
Using this service involves minimal financial costs and few contractual requirements, making it a flexible, profitable, and timely solution. Furthermore, this liquidity is obtained using your own assets, without resorting to debt. Therefore, it does not increase your liabilities.
In short, public factoring is an excellent resource for addressing and offsetting delays in payments from government agencies.
Would you like to take advantage of it under the best terms?
Trust WorkCapital: contact us.
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