Financing for Ontario Government Vendors

The province of Ontario purchases approximately six billion dollars of products and services every year from over 55,000 vendors. Many of these companies are small and medium-sized businesses.

Doing business with the government of Ontario can be a great opportunity for small and growing companies. It is a large and diverse marketplace where government agencies, ministries and municipalities purchase every kind of good and service.

Big sales can lead to cash flow problems

One of the advantages of working as a government vendor is that government clients often place large orders. For many businesses, especially smaller companies, these orders provide a great opportunity for growth.

Unfortunately, large purchase orders can also create financial problems if your business is not well prepared.

Government contracts often pay invoices on 30- to 60-day terms. Long payment terms can lead to financial problems if your company has low cash reserves. Waiting for payments may leave you unable to pay suppliers, employees or start other projects.

In other cases, the purchase order may be so large that your company simply doesn’t have the money to fulfill it. This leaves you two alternatives. You can take the order and hope to find a way to deliver. Or you can pass on the order and let a competitor take it. Neither option is encouraging.

Consider using financing

One solution to these problems is to use financing. Financing can help you improve cash flow and enable you to manage larger contracts. In this article, we discuss three solutions that can help you improve your cash flow so you are better positioned to manage provincial government contracts.

Option #1: Improve cash flow by factoring invoices

Having to wait 30 to 60 days to get paid for an invoice often creates financial problems. Growing companies often don’t have the resources to wait for payments while also covering operating expenses and starting new projects. One simple way to solve this problem is to accelerate your cash flow by factoring your invoices.

Factoring provides financing for your slow-paying accounts receivable. It provides you with immediate funds. This cash infusion improves your cash flow, provides ongoing funding and allows you to grow your business.

Invoices are funded in two instalments. The first instalment is advanced as soon as the work is completed. It covers up to 80% of the invoice. The remaining 20%, less the finance fee, is advanced once the government agency pays the invoice in full. Learn more about factoring here.

Option #2: Handle large orders with purchase order (PO) financing

One of the challenges of getting a very large order is that you may not have the working capital to fulfill it. This problem is common for smaller businesses that don’t have large capital reserves. One way to handle a large order is to use purchase order financing.

Purchase order financing provides funding using your purchase orders as collateral. The solution provides working capital to pay the supplier expenses associated with a specific purchase order. This funding allows you to fulfill the order and deliver the goods to the government customer. Ultimately, your company gets the revenue and you grow your business. PO financing transactions settle once your customer pays the invoice in full.

Note that PO financing can be used only if you resell goods. It cannot be used if you deliver services or if you manufacture the goods directly. Learn more here (see a sample transaction).

Option #3: Consider asset based lending 

One alternative available for larger companies – those generating around a million dollars per month – is asset based financing. This solution provides the most flexibility and allows you to finance accounts receivable, inventory, and equipment.

Asset based loans that are backed by accounts receivable and inventory are structured to operate like a line of credit. You can withdraw funds as needed, and the line fluctuates with the value of the assets. Lines backed by machinery operate much like term loans.

Which solution works best?

The best solution for your company depends on the specific financial problem that you are trying to solve. If you are a small business that can’t afford to wait 30 to 60 days to get paid, factoring is probably the right solution. If you need funds to pay suppliers because you have a large purchase order for finished goods, then PO financing should work best. Lastly, if you are a midsize company that has assets that can be leveraged, an asset based loan could be right for you.

Need funding?

We are a leading provider of factoring, purchase order financing and asset based loans. For a quote, fill out this form or call us toll-free at (877) 300 3258.


Note: This article is intended for information purposes only. If you need financial advice, please consult a qualified expert.