Using Purchase Order Financing to Fulfill a Government Contract
Well congratulations, you’ve done it – you’ve got your small business off the ground. You’ve even posed your company to win a government contract. The big question now is – will you be able to deliver on your commitment? A lot depends on the amount of money in your business’ bank account. Government contracts often involve high-volume orders, so you may need to pull cash from reserves to be able to follow-through. But that brings another challenge – what kind of reserves do relatively new small businesses have? Usually not very much. And what about getting a loan? That can also be a challenge if your company doesn’t have a longstanding credit record. In cases like these, purchase order financing is the way to go.
To take advantage of this arrangement, it’s a good idea to first select a financier that you can trust. Talk to an experienced agent and provide all of the needed information to qualify for this type of credit. When it comes time to bid, check on current interest rates and other key details. Put in your best offer, and if you win, immediately contact your financier again to have them pay your supplier for the materials or goods you need. After the government receives their order, you’ll need to bill them. You’ll generally need to wait between 30-60 days to receive payment, and at that point, pay your creditor to be ready for the next big transaction.
Once you’re setup and running, purchase order financing can become a core part of your regular business process. Sure, you might not need it for every bid, but it’s there for those larger deals that you don’t want to miss out on. One of the great things about these types of sales is that the work required for you is very little. Your business is typically just the vehicle, or middleman between the government bureau and a supplier. By getting in on these types of transactions, you can turn a quick dime with little effort.
Purchase order financing is quicker than trying to get a bank loan or line of credit. It’s also tailor-made for the type of business you are conducting, so it’s simpler, flexible and often more affordable thanks to low interest rates.
Getting creative with credit pays off in both the short- and long-term. As your company grows and you wisely reinvest profits in your business, you may be able to pay more of your suppliers with cash.