Invoice Factoring for Government Contractors

A Tight Labour Market: Skilled labor has never been more in demand than it is today in terms of both recruiting and staff retention. Smaller government contractors are finding it challenging to attract and retain top talent, with the majority of their employees with technical skills leaving to join larger corporations that offer better pay and faster hiring. Retaining key employees may fall down to many mid-tier contractors providing proactive salary adjustments or bonuses to their employees.

Supply Chain Concerns: The current supply chain problems in the world are being felt throughout the professional landscape, from raw material shortages to rising fuel costs and changing consumer behaviors. However, government contractors face the added barrier of abiding by specific regulations, potentially using pre-determined suppliers, and obstacles in what products can be used. Ultimately, ensuring a consistent supply of materials and equipment can be a significant challenge for government contractors. Government contractors will need to find ways to mitigate the financial implications of supply chain complications, for example, outlaying money up front for supplies in order to complete a contract that the government won’t pay for until final delivery (which could be months done the road). Investigating financing options is the best way for government contractors to cover that exposure.

Considerations regarding business type: In the past, companies were more inclined to seek out contracts with a larger percentage of fixed pricing, as they were willing to take on the added risk in exchange for the potential of a slight profit. On the other hand, cost-plus contracts were less appealing, as any savings generated would be returned to the government. However, in the current inflationary environment, companies with fixed-price contracts are facing the opposite situation. It may be worthwhile for contractors to reassess their contract mix and consider options that balance risk and incentives for efficient performance.

Understand your market: Stay up to date on industry trends and changes in government procurement policies to stay ahead of the competition.

Develop strong relationships: Building solid relationships with clients and partners can help you secure new and repeat contracts and access valuable resources.

Manage your finances: Properly managing your finances is key to the long-term success of your business. We know that getting your government client to pay can take a while, so you need to find ways to bring in money and manage it properly. This includes tracking expenses, invoicing promptly, and maintaining good cash flow.

Traditional loans: Bank loans can be a good option for government contractors with strong credit and sufficient collateral. However, for smaller companies or those with poor credit histories, getting approved may be difficult, and in the event that you do get approved, you will likely have shorter repayment periods and higher interest.

Government Business Grants and Financing: The Government of Canada offers various government financing programs, including loans, grants, private and public sector financing, and tax credits. It may be worth researching which options your business qualifies for; however, you will likely need an additional source of financing as well.

Invoice Factoring: By selling their unpaid invoices to a factor, government contractors can access the funds they are owed more quickly, which can help them meet their financial obligations and improve their cash flow. You can factor as many invoices as you need to, the fees are generally lower than the interest on traditional loans, and you free up time to grow your business instead of focussing on collecting slow government payments.