Factoring Blog

Two Easy Ways to Finance Your Government Sales

financing us government sales contracts

The U.S. government can be one of the best customers that your company will ever get. They have great credit, pay on time and buy billions of dollars worth of products and services. And things are even better if you are a small business owner.  The government also has a number of programs to assist the owners of minority businesses. These programs are designed to help individuals and companies that operate – or want to start – a business that sells to the federal government.

The real challenge – lack of funding

Given the size and scope of the purchases that are made by the government, there are plenty of opportunities for many companies to succeed. Lack of opportunity is not a problem. On the other hand, lack of working capital is often a problem that affects government suppliers. Most government purchases tend to be large, at least by small business standards. This can leave many small businesses unable to place a bid to compete for business. Or worse, if they win a bid, it may leave them unable to fulfill it.

Because of this, many government suppliers will stay small. They will grow incrementally, one small sale at a time. Unfortunately  this is not the right strategy to grow and succeed in business.

There are two solutions that can help government contractors that have working capital problems – or who need funds to execute an order.

Problem #1: You got a large order but need money to pay suppliers

This is a common problem for product re-sellers. They have won a large purchase order to sell products but lack the funds to pay their suppliers. One way to solve this problem is to use purchase order financing. With this solution, a finance company provides you with funding to fulfill your purchase order. Your company gets the resources to pay its suppliers from the finance company, who uses your purchase order as collateral. The transaction concludes once the government receives the goods and pays for them.

The solution is only available to companies that resell finished goods that are bought from third party suppliers.  This type of funding works best for sales that have a high gross profit margins – usually above 15%.

Problem #2: You delivered your products/services but can’t wait for the government to pay you

This is another common problem for government suppliers. They deliver their service, or products, but must wait up to 45 days to get paid by the government. The problem is that many small government suppliers can’t afford to wait for payment. They need a quick payment to cover their own expenses. You can solve this problem by factoring your government receivables.

A factoring plan allows you to accelerate the revenues that are tied in your slow paying invoices. A finance company finances your government invoices and provides you with an advance. This gives you immediate funds that can be used to pay for business expenses, or to take on new projects.

Available to small businesses

The advantage of using these two solutions is that they are available to small business owners. They are relatively easy to get because the main requirement to qualify is to have a strong order – or invoice from the government.  Here is more information on po funding qualification requirements and factoring qualification requirements.

Combining both solutions

Many product re-sellers combine factoring with purchase order funding. They use po financing to cover the front end of the transaction and then refinance it with a factoring line once the product is delivered. The advantage of this strategy is that when it’s used correctly it can lower your total cost of financing.

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