Government Factoring & PO Funding

Feb 29

14:29

2012

Lanette Tucker

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In America today it is very difficult to have topline growth. The economy is stagnant and this represents unprecedented challenges to business. There is one exception to this trend. What is the one organization that is buying goods and has small business programs to buy goods from them: The US Government.

In America today it is very difficult to have topline growth.  The economy is stagnant and this represents unprecedented challenges to business.  There is one exception to this trend.  What is the one organization that is buying goods and has small business programs to buy goods from them:  The US Government.

The problem here is it costs money to fulfill a government contract. The company that secures this business needs to  put up the cash to complete the contract. They may have to hire labor, purchase materials and other costs associated with that particular job. The bigger it is, the more they have to pay out.   

These big contracts can be financially draining in the short-term.   Even impossible for the small business to take on in today’s financing environment.   Even if the business can pull together enough money to finance this job, they might not be able to take on any others. This means lost revenue and a squandered opportunity for growth. Even after they finish the job, their financial picture might not change for sometime because they will have to wait for the government to pay.   This process could be anywhere between 30 and 90 days.

Factoring and PO funding can be the perfect solution to financially take on that important, large government contract.  Factoring is the practice of advancing money against your companies receivables.  It allows you to leverage your receivables to obtain financing and help with your cash flow.   Factoring can assist businesses in getting the working capital they need in many situations but what happens if they don’t have the cash to fulfill the order in the first place?  This can be a very common issue when it comes to government contracts and small business.  

If you are selling a hard good, the factor can help in the purchase of that good so you can fulfill the contract through PO funding.   For example, you get a $400,000 order from a government agency and you can get the goods for $300,000.  Using the factors credit, the factor will buy the goods and have the goods shipped to the agency.   That agencywill pay the factor.   The factor takes out their fees and you get the balance.  

Another service a factoring company can provide is credit guarantees.  Lets say you supply t-shirts, lawncare, guard service, building maintenance or temp staffing.  You are trying to land a lucrative government contract.    A factoring company can provide credit guarantees for soft goods so the business can win the contracts and then once you deliver the service they factor the account receivables.

Article "tagged" as:

small business

buy goods

factoring company

business programs

america today

Categories:

Finance