Selling products to the government can be rewarding for businesses. There are $300,000,000,000+ (spds.gov) in government contracts allotted to small business annually by the federal government. Providing opportunities to small companies can help spur business growth, but can also put organizations with limited cash flow in a bind. Purchase order funding for government contracts helps government contractors perform on contracts regardless of size.
A small government contractor may lack the working capital to deliver on large purchase orders—which is typically the case when working with government agencies. Winning a bid that you can’t fulfill will hamper the success of your organization. Turning to traditional business loans for fast and expensive cash has its downfalls.
Securing the appropriate federal government contract loan is crucial to your success. In this article we will tell you about financing a government contracting company, and various government contract financing options.
Smarter Financing – Purchase Order Funding for Government Contracts
Purchase Order Funding is a type of financing that allows businesses to fill orders. Access to capital helps avoid the risk of late delivery or losing a government contract altogether. STAR Funding will also consider Work-In-Process funding and handles your ar financing for financing a government contracting company in house.
Finding the right government purchase order financing company will allow you to bid on opportunities you otherwise would not have due to capital constraints. Once you understand the financing limitations of your lender you will be able to bid on whatever opportunities you can fill logistically.
Purchase Order Financing Pros and Cons For Government Contractors
Even the best government contract finance companies are a one size fits all solution. Generally speaking the benefits of financing government contracts and government invoices outweigh the disadvantages.
Advantages of Purchase Order Funding for Government Contracts
- Permits companies to bid on large government contracts.
- Clients can receive funding for up to 100% of cost of goods.
- PO Funding provides greater availability than standard business loans.
- US Government allows for assignment of claims in support of far financing for federal contracts.
- Government contract financing options are widely available.
Disadvantages of Purchase Order Financing for Government Contracts
- Assignment of claims process(required for financing the accounts receivable of government invoices) can take up to two weeks if not processed correctly.
- Leverage when factoring government contracts only covers cost of goods and government receivables.
- When financing federal contracts ar financing for the government receivables is required.
- Agencies offering local government contracts might not be set up to coordinate with a government contractor financing company like an invoice factoring company.
Finished Goods Financing
Funding a PO for finished goods is the most common type of purchase order financing. It involves the purchase of goods for resale that don’t require any assembly or customization prior to reselling.
Finished Goods Financing is highly preferable to typical short-term loans and typically comes with a much more favorable interest rate and turnaround time.
Work in Process (WIP) Financing
PO Funding for WIP involves purchasing components or raw materials that require assembly prior to sale. The process is more complex than finished goods financing. Additionally, the standard costs of work in process PO funding is greater.
However, work in process may not require 100% funding of raw materials. The costs of funding the invoice may be significantly less than funding 100% of the finished product cost.
Applying for Funding is Easy with STAR Funding
It is important for you to find an experienced lender when financing government contracts. Familiarity with the Assignment of Claims Act(often a requirement for government contract factoring) is crucial. Not following proper guidelines will result in payment delays and cancelled contracts.
The knowledgeable team at STAR Funding has years of experience helping companies finance government contracts. Regardless of the PO funding option you need, we review and deploy funds in just a few days. STAR provides up to 100% funding of cost of goods for a transaction, and 80-90% of the government invoices. Contact STAR today to discover how we can help you win more business.