Thursday, October 19, 2006

Government Receivables - They Took a Holiday

CFO Magazine reports that the federal government put Medicare related vendor payments on hold for nine days at the end of the fiscal year ending September 30th. No doubt, many businesses both small and large took a hit to their cash flow when accounts receivable collections suffered.

Let's put that into perspective for you.

Let's assume that your company generates $10 million per year of revenue. Normally, you collect on accounts receivable in 30 days. If you're collections period (days sales outstanding) increased by nine days for an entire year, your cash flow would significantly decrease and your interest costs would increase by approximately $30,600 for the year if your company is able to borrow money at 9.5%. Thank you, Uncle Sam!

Some banks are uncomfortable about lending to companies that provide products to government agencies. If you're one of those companies, you may be funding those contracts internally or perhaps utilizing factoring and the cost of being stretched out on your accounts receivable might be more expensive.

As I mentioned in my posting on government contracts funding, if you're providing products or services to the government or to a prime contractor fulfilling a government contract, don't get caught in a working capital squeeze. Cost effective financing is available - feel free to give me a call and see if I can help.

Need help finding the right lender or telling your story the right way? Read "Matchmaking for Business Loans"

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