Frequently Asked Questions

If you have a question concerning our services that we have not answered here, please contact us.

What kind of factoring programs does armcor offer?

Customized 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 objectives.


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 creep.

Just as significantly, our 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 yield.

When 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").

Our 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 understand—and 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 prompt collections 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.


Does armcor require personal guarantees?

No. 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 Government.


Why shouldn't we just offer a prompt payment discount and get the Government to pay us early?

There are three good reasons not to rely on prompt payment discount offers as a method to accelerate cash flow:

  1. The Government is not obligated to accept any discount offer, so contractors making these offers cannot rely on them always doing so.

  2. The 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 requirements.

  3. 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 discounting:

Offer 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.

Offer 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.

If you 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% annual inflation).


Which transactions does armcor prefer?

armcor 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.


Is armcor willing to consider factoring from debtors other than the U.S. Government?

Although we 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 contact us for more information.

Otherwise, armcor does 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?

armcor normally factors current invoices, but we will consider aged invoices. Fees may be higher for aged or past due receivables.


Will armcor purchase one invoice out of a series of invoices scheduled for a contract?

armcor 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. 


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