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If you are the owner of a manufacturing business, have you considered selling to the U.S. government? If not, you could be missing out on a tremendous opportunity for growth. Hundreds of agencies operate within the U.S. government that uses contractors to provide goods and services for a variety of reasons.
While participating in the bidding process for government contracts is different from the private sector, winning can be rewarding.
These expansive opportunities for bidding on government contracts can help your bottom line.
Assistance in Receiving Government Contracts
The government has various resources to help small business owners prepare and compete for contracts. Numerous databases exist where you can search for open government contracts that match the products and services your manufacturing company offers. You can also stay connected to the government marketplace for new opportunities. Once you are awarded a contract, assistance continues through the Procurement Technical Assistance Program to perform contract audits and measure progress.
Additionally, the federal government must set aside a percentage of manufacturing contracts for small businesses. As a small business owner, you do not compete in the same arena as larger corporations. If you are minority-owned, woman-owned or located in underutilized business zones, you might be eligible for specific contracts.
The primary downside to winning government contracts is the amount of capital often required to fulfill contract obligations. Some can be as high as $1 million that costs your manufacturing firm $700,000 to finance. If you are like most small manufacturing firms, you might not have that much capital sitting and waiting for the government.
Putting all of your available resources into the government job may leave little or no money to fund other projects. Even less is available for day-to-day expenses such as meeting payroll and paying vendors. The excitement from being awarded a government contract will dissipate as resources are drained.
Rethink Funding Opportunities
Factoring government receivables might be a viable option if you regularly receive government contracts or are thinking of jumping into this opportunity. In many situations, the government may not pay an invoice for 30 or 60 days. Sometimes, the wait is even longer depending on the type of service your manufacturing business offers.
Other projects can only carry your business so far while you wait for payment from the government. Being unable to pay your bills can threaten the strength of your company. You want to be around for the next contract opportunity. While banks may offer business loans, this might not be the best option for you. Approval and payment could take as long as it does to wait for the government.
How Factoring Government Contract Receivables Works
Factoring government contract receivables is not difficult for your business. In fact, you might find the process easier to master than procuring the government contract. Basically, you partner with a trusted factoring company that has been in business long enough to understand how the manufacturing industry works.
The process involves receiving an advance from the value of outstanding receivables. Your government contract is used to determine how much you can receive immediately to fund your business operations.
While there are many companies from which to choose, not all factoring companies can appreciate the ups and downs of the manufacturing industry. Others are skeptical about funding high-dollar contracts.
Generally, the factoring company will need specific information about the government contract. The amount of the advance is based on the value of the contract. Although you receive slightly less than the full contract amount, you will have a cash flow until the government pays the invoice. Once the government pays, the factoring company is reimbursed for the advance, plus a small factoring fee.
Doing business with the government is rewarding, especially if you are a young manufacturing company. This is an opportunity that can expand your portfolio and give you access to bigger contracts. Selling products and/or services to the government is a guaranteed way to get paid. You just do not know when it will happen. It could happen in 30 days, 60 days or longer.
The other side is that government contracts can become a challenge or burden to your manufacturing company. The challenge is greater when you master the procurement process of landing government contracts, but have to wait for payment. Without the resources to handle a contract, this good opportunity can turn into a nightmare.
However, taking advantage of factoring receivables is a good way to accelerate the government payment process without waiting for the government. You will have immediate access to needed capital to pay bills and fulfill the obligations of the contract.