Financing Your Government Contracts With Purchase Order Financing
Purchase order financing is a very good way for businesses to generate the capital necessary to fund government contracts. Government contracts are in hot demand. They provide companies with business that can be counted on and that also pays well. Businesses typically don’t have to worry about a check from the government bouncing or not getting paid. Consequently, businesses go after these contracts hard, hoping to secure the business of the government. The problem is that these jobs can be quite expensive to fulfill and can subsequently, put a lot of strain on a businesses’ cash flow. Purchase order financing is one way for them to get the money they need.
Bank financing has historically been one of the primary ways that companies used to come up with the money they need to cover the costs of their government contracts, though this was not always possible for every business. Newer companies may not have been able to qualify and neither might those with bad credit. Today, it is difficult for all companies to secure a loan, regardless of their credit history or length of time in business. One option for those looking to generate cash is purchase order financing.
Purchase order financing is a method of generating capital that would be ideal for those with government contracts. In order to fulfill a government contract, it is often necessary to buy materials or products. If a company does not have the money on hand to do so, they can not complete the job. That is where the aforementioned financing comes into place
Purchase order financing occurs when a company sells their purchase orders (orders for materials, finished goods, etc.) to a business known as a Factor. The Factor will make arrangements with the supplier which may include actually buying the supplies or goods with cash or opening up a line of credit with them. The company who needs the goods will then be able to receive them. They will repay the Factor after they have completed the government contract. Payment for this service typically involves some sort of profit sharing.
Purchase order financing is an ideal way for businesses to finance government contracts. It makes it possible for companies to immediately generate the cash they need to fulfill their contracts, even if they do not have the money required. Instead of having to turn down the contract or somehow get out of it, they are able to complete it. This puts them in a good position to receive another contract in the future. The availability of purchase order financing also makes it possible for smaller companies to go after government contracts. Many shy away from them because they fear they don’t have the capital. P.O. financing provides them with the capital they need to compete even with larger, more established companies.