In federal contracting, there is a classic issue where all contractors can relate: The need for working capital. Doing business as a government contractor can be lucrative, and you can rely on the government to pay you for your work, but the amount of time between starting your work and getting paid can cause a working capital shortfall that many small to mid-sized contractors can’t survive.
Businesses may be forced to get through two to four payroll cycles before they are paid for the work they have already completed and invoiced. Operating expenses will accrue during this time as well. If this is an issue your company has navigated, are you aware of the options available to you to mitigate the impact of this problem and where to turn for solutions?
In a perfect world, government contractors would be able to walk into a bank and get a line of credit to support their federal contract awards. But these days, banking relationships are riddled with red tape to access the working capital necessary to keep doing business, especially for small- to mid-sized companies. If you are not aware of the requirements necessary to have access to a loan from the bank, you may get a rude awakening when you seek it out and are turned down.
The window of time your existing operating cash can suffice is dwindling and your need for more is coming fast and furious. Desperate times sometimes call for desperate measures and some enter into a “solution” that is more part of the ongoing problem than it is a remedy. Oftentimes a quick fix, like a Merchant Cash Advance (MCA) seems your only way out. Though they take no time at all to put in place, (sometimes as quickly as one day) they will eat up your profit, and negate the work you’ve performed on the contract.
Invoice factoring has long been seen as the only other viable option, and though some may appear to have reasonable rates, there are many unforeseen fees with cost models varying by company. If you can’t adequately track the amount you will pay, it is uncertain the amount of return you will achieve by utilizing this option. Additionally, this method can be quite rigid in the types of invoices acceptable for purchase, pretenses under which they are bought that may be difficult to adhere to, not to mention that most subcontracting opportunities are passed over due to the risk.
In any event, you are required to sell an asset for borrowing purposes for an amount you may not necessarily need. If your invoice is $100K, you will be forced to take the discounted rate at $80-$85K, even if you only needed to use $35K for this purpose. You’ve tripled your debt because of the lack of flexibility in this option.
When partnering with Parabilis, government contractors have three collateral options to borrow from and you won’t be forced to take more than you actually need. With our service, you can pull your accounts receivables (AR) forward to pay your bills while utilizing a reasonable, affordable, and fixed interest rate. Additionally, we lend against unbilled labor and delivery orders. With access to cash with these options, you can create a fast, flexible, and affordable way to pay your bills and stay on top of your operating expenses. Our services are great for companies that are growing rapidly, and provide a fool-proof pathway to cash positive business practices. Schedule a consultation to see how our company can partner with you!