One advantage of being a government supplier is that your business is less dependent on the nation’s economic cycles because the US government buys products and services in both good and bad economic times. However, the process of finding contracts and and selling to the government is complex and requires companies to be masters of detail.
Companies also need to master balancing the demands on their cash flow because most government invoices pay in 30 to 60 days, while suppliers, landlords, and employees usually need faster payments. Unless the company manages its cash flow properly, or has a substantial cash cushion, it can encounter problems and possibly miss important supplier payments – or worse – payroll payments.
One way to address this cash flow problem and position your company for growth is to use the right business financing solution for your company. Two business financing solutions are well-suited for government suppliers: purchase order financing and invoice factoring. Individual circumstances determine which solution is better. If you are a product reseller, consider government purchase order financing. Otherwise, consider invoice factoring.
Financing government resellers
If your company buys products from suppliers and resells them to the government with little or no product changes, consider purchase order financing to help you bridge the gap between suppliers demanding quick payments and customers (such as the government) paying on net-30 to net-60 terms.
Purchase order financing is a vendor financing solution that covers supplier costs, enabling your company to accept large government orders without worrying about supplier payments. The transaction between your company and the financing company settles once the government pays the invoice in full. One important detail about purchase order financing is that your company must resell the product without modifying it. You can learn more about the qualification requirements for purchase order financing.
Financing government service providers
If your company sells customized products or a service, then consider financing your company using invoice factoring to help bridge the gap between invoicing the customer and actual payment. For many companies, this gap can last up to 60 days. Factoring provides an upfront advance on your invoices, providing the capital you need to operate your company. The transaction between your company and the factoring company settles once the government pays the invoice in full. To learn more, please read “What is factoring?”
Can government receivables be assigned?
This condition varies by contract, but, in general, government receivables can be assigned to third-party finance as specified in the assignment of claims act. Actually, most federal government bid forms allow you to indicate if your payment will be assigned to a third party. As a precaution, consult an attorney to advise you on your specific contract.
Advantages of purchase order financing and invoice factoring
The most important advantage of both purchase order financing and invoice factoring is that they are easier to obtain than most conventional financing products. Factoring and purchase order financing companies prefer to work with clients who have solid customers because your invoices are considered to be your most important collateral – and government invoices hold the highest quality rating. Other than that, your business must be free of legal and tax problems.
Another advantage of these programs is that, unlike a conventional business loan, they don’t have fixed maximums. Rather, the limit of the financing line is determined by the dollar value of your invoices, the quality of your customers, and your ability to deliver your product or service. This feature makes both purchase order financing and invoice factoring ideal solutions for small businesses that are growing quickly.
For additional information, please read “5 Ways to Finance a Government Contract.”
Get more information
We are a leading provider of factoring and purchase order finance to government contractors. For more information, get an online quote or call (877) 300 3258 to speak with an expert.