Frequently Asked Questions
you have a question concerning our services that we have not answered here, please
kind of factoring programs does armcor offer?
solutions can be designed for special situations and
opportunities, but our main program is simple:
armcor purchases approved invoices from federal
prime contractors at a flat-rate discount rate. Unlike
all other firms purchasing receivables from
federal government contractors, we require no security reserve or holdback;
our clients get the full face
value of each factored invoice at the time of purchase (less the discount fee).
We do consider projected volume,
frequency, and granularity when quoting a Net 30 rate,
but retroactive rate adjustments are never imposed if
projections fall short, and, since there is no minimum
term, we have no exit penalty for "early termination";
clients may discontinue whenever it suits their business
How do armcor factoring discount rates compare?
Traditional factors often quote what appear at first glance to be more appealing initial rates,
but terms stipulate that the client pay
additional interest charges when collections take longer than 30
days, and, in some cases, the factor tacitly encourages the
government payment office to pay more slowly.
Sometimes this additional interest is done at the
discount rate; sometimes interest is calculated
based on a premium to the prime rate; sometimes this
additional interest is computed daily; and sometimes
interest is even charged in 10-day or weekly blocks.
The bracketed interest charge is certainly worse
than a more fairly computed prorated daily fee, but,
in all cases interest can result in significant rate
standard terms and conditions give clients full use of
factored funds. Traditional factors keep holdbacks of
10-30% of the invoice face value.
Rate creep due
to slow collections, depreciation due to inflation, and
the opportunity cost of not being able to use the funds
other factors hold as a security reserve represent
hidden costs in the rates quoted by other factoring
companies and require that a greater face value of
invoices be factored to achieve the same working capital
comparing factoring programs with different security
reserve requirements, a standardized benchmark is the
only way to determine total cost. This may be done by dividing the
total cost of money by the working capital yield (which other firms
sometimes call "the advance").
flat-rate pricing and waiver or reduction of reserve requirements
mean that our Net 30 rates are actually equivalent
to lower rates offered by traditional factors and
asset-based lenders. This difference can be greater
than a point at the 30-day mark, and may rise to
almost 1.5% after 40 days. In other words, when
hidden costs are added into the total cost of funds,
traditional factoring programs must quote very
aggressive discount rates to match our standard rates.
By using flat rate pricing,
our program is simpler to understandand we cannot profit by
slower collections. Thus, we avoid the conflict of
interest other factors are saddled with when they must
choose between the desire for additional interest and
that keep total costs lower for the client.
As part of
our rate proposal package, prospective clients receive a
full, customized analysis containing more than a dozen
comparative tables to help illustrate the impact of
security reserve requirements and additional interest
due to late collections.
armcor require personal guarantees?
This is another attractive feature of our program
that no one else offers. Our security is in the properly
documented and assigned federal government receivable. Keep the
deed to your house—we don't need it. It doesn't matter if your
business credit or personal credit contains derogatory
information because our collateral is the government's debt to
your firm and the creditworthiness of the United States
Why shouldn't we just offer a prompt payment discount
and get the Government to pay us early?
are three good reasons not to rely on prompt payment
discount offers as a method to accelerate cash flow:
Government is not obligated to accept any discount
offer, so contractors making these offers cannot
rely on them always doing so.
Government is most likely to accept offers in the
range of Net 10 to Net 20 days. Earlier deadlines
are difficult to meet, and later ones make a weak
case. If you need funds more quickly than two weeks,
discount offers are unlikely to meet your
Lastly, prompt payment discounts are expensive. Our
research estimates that the average prompt payment
discount offer is for 1.32% at Net 15.7 days (or
14.3 days before the standard Net 30 due date).
Although actual data are scattered along a curved
line, on average this means contractors offer a
discount off of face value of 0.092% per day paid
early. Assuming that it is unlikely that the
Government would be enticed to accept lesser offers,
we'll extrapolate two typical offers here to
illustrate the true cost of prompt payment
1: Net 10 at 1.84%. 1.84% is taken off of the
invoice face value if the remainder (98.16%) is paid
within the first 10 days. At the current annual
inflation rate of 3.97%, inflation will devalue the
full face value to 99.67% if no early payment
occurs, and the offered settlement price of 98.16%
is actually devalued to 98.06% of the original value
after 10 days, so the Government would save 1.62% in
adjusted constant dollars if the discount option is
exercised. The Government's savings is the
contractor's cost, so when the 1.62% is divided by
the working capital yield from the settlement
(98.06%), the true cost of the concession may be
calculated: 1.65% or 0.16% per day. Multiplying the
daily rate by the 30 days in a month, it can be seen
that a typical Net 10 discount offer compares to a
Net 30 factoring rate of 4.95%. Not only are
armcor's factoring rates generally much lower
than 4.95%, but our clients do not have to wait 10
days for their funds.
2: Net 14 at 1.47%. A 1.47% discount is
allowed if 98.53% of the original face value is paid
within two weeks. If no discount is exercised,
inflation will devalue the full face value to
99.67%; the offered settlement price is worth 98.38%
of the original value after 14 days. The Government
stands to save 1.30% in adjusted constant dollars.
When the cost to the contractor for this discount is
divided by the working capital yield from the
settlement (98.38%), the true cost of the concession
can be seen: 1.32% (0.09% per day). For comparison
with Net 30 factoring rates, this figure converts to
a monthly rate of 2.82%. While this is much closer
to typical Net 30 factoring rates, our factoring
clients have use of these funds a full two weeks
before any early payment would occur.
can wait for as long as three weeks, however, prompt
payment discounts are almost always going to be
cheaper than factoring or credit (approximately
equivalent to a Net 30 cost/yield of 1.05% at 3.97%
Which transactions does
buys and collects invoices due from the U.S. Federal Government. This
includes any invoice, voucher, or claim accepted on behalf of
the Government by an authorized representative for services
performed or goods delivered.
armcor willing to consider factoring from debtors other than
the U.S. Government?
currently are not offering this service, we have in the past considered factoring accounts receivable of federal
subcontractors where the debtor is an armcor Approved Prime
Contractor (usually one of the very large government prime
contractors). We also have purchased select state paper
previously and we expect to resume doing this again at some
point in near future,
along with a resumption of our APC program. Please
us for more information.
not factor receivables
due from non-government debtors, but we do maintain a referral
network and can generally refer deals to other firms that
specialize in the particular facility your situation demands.
Does armcor have aging preferences?
normally factors current invoices, but we will consider aged
invoices. Fees may be higher for aged or past due receivables.
armcor purchase one invoice out of a series of invoices
scheduled for a contract?
purchases each invoice separately, and we are willing to
buy as little as one invoice out of a contract. The
minimum amount of a single invoice we will purchase is
usually $10,000. We understand that you may just want a
single invoice factored, and we are content to provide
service to you for as long as you desire. However, it
may be preferable for a growing federal contractor to
maintain an open account relationship with armcor so that we may help
you quickly whenever the need arises.