Government Purchase Order Financing – Know These 8 Things!
Star Funding is one of the few lenders that offers purchase order financing for government contracts. Working with a federal or state government agency is a great way to grow your business. Whether you are searching for bid opportunities on FedBizOpps or filling local government purchase orders, winning a government contract can be very rewarding but at the same time it can stress out your cash flow.
When working with the government, purchase order financing can be your best option to fill the order. Many of our clients are selling to government agencies on a regular basis. You don’t have to try and be like Jonah Hill in War Dogs, but a few nice winning bids can help you build a very profitable business.
Below are the top 8 questions a purchase order financing company will ask before financing your government purchase orders and contracts.
- Are you registered as a government vendor? Pretty much anyone can sell to a government agency. The federal government sets aside over $3 billion in government contracts for small businesses like yours. In order to take advantage of these opportunities you must be registered as a government contractor. At minimum this means you need a DUNS Number and should be registered in the System for Award Managament (SAM).
- Can you fill the order quantities? When a government agency issues a request for bids on a certain quantity of products, they need that quantity. Purchase Order Financing can help fund the government contract. Money aside, you still need to produce and deliver the right amount of product. Most agencies aren’t set up to manage multiple deliveries under the same order and most will not pay against partial shipments. If you think it will be a challenge to deliver the order in full, don’t take the risk. Missing a delivery quantity can lead to a canceled order or non-payment.
- Can you meet the timeline? Bid opportunities will clearly outline the delivery date of when the agency needs the products. Often times your products are a part of a much larger program and late delivery can create major issues.
For example: you may be delivering hats as part of a larger uniform program for a specific event, or those 45 snow plows are expected to be delivered BEFORE the first snow!
- Are your vendors approved to work with a government agency? Certain products being purchased by certain government agencies may be required to be purchased in the US or through an authorized manufacturer. Make sure to ask the contracting officer if you feel there are any stipulations here that need to be followed. The last thing you want to do is deliver goods that are not accepted.
- Are you selling custom made goods or “off the shelf” products? Much like any commercial sale, custom goods do come with additional risks. Cancelled orders, missing a product spec, or late delivery can leave you stuck with products that you cannot sell… Yikes!
- What are your margins? Have you factored in ALL of your costs? Winning your next government bid is great, but don’t forget to make money. It’s important that you cover all of your costs like shipping, product development, financing(Learn more about PO Financing Rates HERE), and sometimes warehousing if you need to hold onto the goods before delivery.
- How will this order affect the rest of your business? Are you going after bid opportunities that are much larger than your typical purchase orders from commercial customers? If you are, make sure your cash flow and operations team can handle the transaction.
- If you are going to be financing your government purchase order, have you done your research? Prior to submitting your winning bid you should have an estimate of your costs and the timeline associated with the transaction. Speak with your lender about the products and review the entire buy -> sell of the transaction. The last thing you want to do is get an acceptance email from the contracting officer and for some reason your lender turns down the transaction.
STAR Funding has been providing purchase order financing and non-recourse factoring to government vendors for over 17 years. If you are looking for capital to fill your next government contract it’s never too early to speak with a purchase order funding company who specializes in financing government contracts. Click HERE to Speak with one of our financing specialists today to learn more about how STAR Funding can help you grow your business.