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Purchase Order Funding Benefits For Government Contracts

Many small business owners find it profitable to sell products to the US Government. However, small companies having government contracts often lack the working capital to deliver. Product contracts often have large values that exceed the financial abilities of small government vendors. As a result, these companies face a dilemma when it comes to winning the orders and able to meet them. At that stage, without knowing the benefits of Purchase order funding for government contracts, they lose the opportunity to get funded.

Benefits of Purchase Order Funding For Government Contracts

Purchase Order Financing for Government Contracts

As a small company owner, if you are selling products to the US Government, then you can solve this problem by using purchase order (PO) financing. PO financing is a type of business funding that helps finance government contracts.

What is a Purchase Order?

A purchase order (PO) is a commercial document. It is issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services. When the seller accepts the PO, it becomes a contract. It authorizes and controls the purchase transaction. A purchase order is a document that allows the seller to produce the specified goods that have been pre-sold. If the buyer meets all the conditions in producing, delivering the goods and services, then there is a guarantee that the buyer will purchase the output. So, the products are pre-sold when the purchase order is issued.

What is Purchase Order Funding?

Purchase Order funding is a financial tool for acquiring funds from Purchase Order. It is a short-term financing option. Under this arrangement, the factor or the finance company either make a payment or promises to pay your supplier for the goods they supply. The finance company makes direct payments to the supplier so that they proceed to supply the goods to you. Once you generate revenue from the sales proceeds from your customers, you can settle the payment for PO funding. Often purchase order financing, and factoring services are combined to lower the total transaction cost.

What are Government Purchase Order Funding Benefits?

Available For Small Companies:

Many companies, especially smaller ones, shy away from going after government contracts because they believe that they are out-of-reach financially. The working capital, which is necessary to purchase materials to complete a government job, meet any ongoing financial obligations, may not be available to many companies. As a result, companies don’t even try looking for a factor who can help. Others will try to put themselves in a position to compete for such contracts by attempting to take out a loan. Sometimes it works, but often it does not. Because of a requirement of good credit and an organization must have been in business for a certain time. In all these cases, it will be difficult to qualify for a loan. Purchase order financing is one way for them to fulfill a government contract even if they don’t have any money to purchase materials.

Easily Available Vs. A Bank Loan:

If a government contract requires the manufacture of some product, then PO funding provides businesses with a way to secure the materials they need; without the company using any monies of their own. It works exceptionally well for companies doing business with the government. Many banks and accounts receivable funders specifically exclude Government Receivables from availability. Factors understand the Federal Acquisition Regulation (FAR) and the culture of dealing with and getting paid by the Government. Also, factoring companies knows one of the best ways to grow your business is through sales to Government entities. Factors want to be there for your company’s working capital needs.

Easy to Setup:

A Factor plays a significant role in the purchase order funding process. They purchase the materials a company needs to fulfill their government contract. Once the business has what they need to manufacture the product they have been contracted to, and are paid, they share a portion of proceeds with the Factor. This is a win-win for all parties. The government gets the work they require done, the Factor gets paid and the company looking to fulfill the contract gets the materials they need to do so; at no upfront cost. The latter allows companies, even those without a lot of cash on hand, to compete with larger companies that have bigger budgets, for government contracts.

Purchase order funding is ideal for companies looking to work with the government, especially those that are not particularly liquid or have a lot of money. Instead of them having to borrow cash, or forgo going after lucrative contracts, they can compete because they have the funding to do so. A third party will be able to purchase the materials they need so that they can service any government contract they are fortunate enough to secure. The best thing about this arrangement is that they can repay them in-full from the profits they generate selling the said product or merchandise. This allows them to forgo taking on new, costly, and long-term debt. PO funding is thus, a great option and a good alternative for companies interesting in working with the government. It allows them to do so without traditional, commercial financing.

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Purchase Order Funding Benefits For Government Contracts

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