Summary: Selling products and services to jails and prisons can be very lucrative. Many small businesses benefit from selling products to the Federal Bureau of Prisons and different state departments of corrections agencies. However, selling into this market can be a daunting task.
Small businesses also encounter financial obstacles. You may have to work with facilities that pay their invoices in 30 to 60 days. This can create cash flow problems. Small businesses may also find government bid requests that exceed their financial capabilities. Consequently, they miss these profit opportunities.
This article helps address these issues. It is divided into two sections. The first section provides a brief overview of how to find potential sales opportunities. The second section discusses the financial products you can use to finance your orders. We cover the following subjects:
- What products do jails and prisons buy?
- How to find bid opportunities
- Handling slow invoice payments
- How to finance large purchase orders
1. What products/services do jails and prisons purchase?
Jails and prisons must buy all the products and services needed to maintain the facilities and support the inmate population. Their purchases include most products and services you can think of.
For example, consider what items a prison needs to feed its inmate population. They must regularly buy conventional food items, such as milk, bread, meat, vegetables, and other products. This is just one item category. Now think of what they need for maintenance, etc. The market opportunity is substantial.
We performed a sample search of purchase requests from the Bureau of Prisons to see what was available. This search should give you an idea of the scope of the products and services they purchase. Our search found contract awards for the following:
- General food (e.g., beans, etc.)
- Renovation services
- Electronic components
- A/V equipment installation and removal
- Roof replacements
- Consulting opportunities
2. How to find contract opportunities
Breaking into the prison supply market can be daunting for many small business owners. The market is large and segmented. Furthermore, each purchasing group has a different bidding process.
Prisons may be operated by the federal government, a state agency, a county agency, or a city agency. Jails, on the other hand, are usually operated by cities or counties. Each of those government agencies has its own procurement process and requirements.
a) The market is complex
Facilities at the federal level are operated by the Bureau of Prisons. Facilities at the state level may be operated by the state, county, or local= city. You must become familiar with the procurement process for each market you want to service.
Let’s consider the state of Florida as an example. The Florida Department of Corrections, a state agency, makes procurement requests through the Florida Department of Management Services. However, counties with a prison or a jail handle their procurement requests through the county’s system. Keep in mind that the county’s procurement system is different from the state’s system. The same goes for facilities operated by cities.
However, complexity may also be to your advantage. You may be able to find a niche that few companies service. Consider starting with small orders at the local level and growing your business from there. Trying to handle several government agencies at once is difficult, at least initially.
b) Becoming a federal vendor
The Bureau of Prisons posts all their procurement requests using the System for Award Management (SAM). SAM is the US government’s centralized purchasing system that allows you to review all bidding opportunities.
All federal vendors must first register their businesses through SAM. Once the registration process is complete, you will be assigned a Unique Entity ID. You will be able to bid for opportunities once your company is appropriately set up.
Here is some detailed information about registering your entity in SAM.
c) Looking for federal contracts
Searching for opportunities is relatively simple. All opportunities are listed in SAM, which has a detailed search function. The search function allows you to narrow down opportunities based on a number of criteria. Here are some filters to consider:
- Select “Contract Opportunities” (Select Domain)
- Select “1540 – Federal Prison System” (Federal Organization)
- Select “Active” (Status)
These filters will show you all active opportunities for the Bureau of Prisons. From that point, you can narrow down opportunities based on the type of product/service you offer, location, and other criteria.
Read “How to find government contracts” to learn more.
d) Special designations
Local, state, and federal government agencies have special designations designed to help certain disadvantaged business owners who meet certain qualifications. These are part of the 8(a) program and include:
- Woman-owned small business
- Minority owned businesses
- Service-disabled veteran-owned
The Small Business Administration (SBA) has helpful information about becoming a federal contractor. Government agencies want to work with small businesses and help them grow. We suggest you take advantage of all the opportunities and designations you qualify for.
3. Handling slow invoice payments
Some government invoices get paid on net-30 terms. These terms give government agencies 30 to 60 days to process the invoice and deposit funds into your account. Net-30 payment terms are typical in sales to the government and to commercial clients.
Waiting for payment is not a problem for most companies. They can use their cash reserves to handle business expenses until their invoices get paid. However, offering terms can create problems for small businesses and for companies that are growing quickly. These companies may need to use financing, at least initially, to cover operational expenses.
a) Finance invoices with factoring
One way to handle slow payments is to finance your government invoices using invoice factoring. This improves your cash flow and provides funds to pay employees, suppliers, and other business expenses.
Invoice factoring is intended for small businesses. It has simple qualification requirements, and most lines can be deployed quickly.
Read “What is factoring?” to learn more.
b) How does factoring work?
Factoring transactions typically finance your accounts receivable in two installments. The first installment covers up to 85% of the invoice. It is deposited into your account after the factoring company receives your invoice and verifies it.
The remaining 15%, less the factoring fee, is deposited into your account once the government agency pays their invoice on their usual schedule. Most small companies that use this solution finance their invoices regularly, at least until they have an adequate cash reserve. This smooths out operations and provides a platform for growth.
Read “How does factoring work” to learn more.
c) Qualification requirements
Qualifying for factoring is simpler and easier than obtaining other solutions. The most important requirements are as follows:
- Company must be incorporated (e.g., LLC, Inc. etc.)
- Must invoice after delivering products/services
- Invoices must not be encumbered
- No serious tax or legal problems
4. How to finance large purchase orders
One of the advantages of bidding for government orders is that some orders are substantial. Consider the requirements of a prison. They need to buy a large volume of supplies regularly. These purchases create a fantastic opportunity for small business owners.
However, fulfilling a large order is difficult. Most suppliers demand quick payments, while the government pays in 30 to 60 days. Many small companies aren’t able to fulfill these orders and must pass on the opportunity. However, some government orders can be financed.
a) What is purchase order financing?
Purchase order financing helps government vendors that resell and distribute products. It provides financing to cover the supplier cost of the order. This enables them to fulfill larger orders and grow the business.
The finance company pays your supplier directly, usually with a letter of credit. The letter of credit guarantees the supplier’s payment as long as they deliver the goods you purchased. The transaction concludes once the correctional facility pays the invoice.
Note that purchase order financing cannot be used by companies that manufacture goods directly. These companies should consider supplier financing instead.
Read “What is purchase order financing?” to learn more.
b) Qualification requirements
Qualifying for purchase order financing is simpler than qualifying for other financing products. The main requirements include:
- Purchase order must be for products (e.g. not services)
- Order must not contain direct assembly/manufacturing
- Order must be for a minimum of $100,000
- Gross margins must exceed 20%
- Invoices must not be encumbered
- Company must not have serious legal/tax problems
Get more information
We are a leading provider of factoring and PO financing to jail supply companies that need financing. For more information, get an online quote or call (877) 300 3258 to speak with an expert.