Government contracts can exist on the local, state or federal level. And while there is often a lot of opportunity supplying goods or services to the public sector, one of the biggest challenges facing small and medium sized enterprises (SME) in particular is the extended payment terms associated with business-to-government (B2G) contacts.
It is not unheard of for payment terms with government contracts to extend out to 90 or even 180 days. This can put strain on an SME’s cash flow and cause gaps in working capital.
That’s where Invoice Finance comes into it. This financial facility allows businesses to utilise the funds locked up in unpaid but issued invoices and ensure ongoing operations, keep projects moving and smooth over their cash flow gaps.
To learn more about ScotPac’s Invoice Finance solutions click here.
How does Invoice Finance for government contracts work?
Invoice Finance leverages the otherwise inaccessible working capital locked up in unpaid invoices. Instead of having to wait months for your government contacts to settle their account, with a financial partner like ScotPac, you can access up to 85% of the invoices’ value upfront.
What is the process for Invoice Finance?
- First, you deliver the goods and services as outlined in your government contract.
- You then issue your invoice, as normal, with the standard and agreed to payment terms.
- Then you submit the invoice or invoices to ScotPac and receive almost all of its value within as little as 24 hours.
- When your government client pays the invoice, you receive the remaining balance less any applicable fees.
Can you avoid long payment terms with B2G contracts?
Many government departments are restricted to set procurement and approval processes. This means that before releasing funds and paying off invoices, there may be multiple review stages and approval gates.
Each government department will have its own auditing, accounts payable and authorisation processes that can cause delayed payment.
Some of the most common causes of delays include:
- Complicated or extensive multi-level approval system
- End-of-month or even quarterly payment cycles
- Ongoing contract verification and project audits
- Budget allocation
- Fiscal-year timing restrictions
For many SMEs engaging in government contracts, these unavoidable delays in payment can place a strain on working capital and thus stall projects, inhibit ongoing operations, drain resources, and inhibit growth.
What are the benefits of using Invoice Finance for government contracts?
Having access to an Invoice Finance facility, you can ensure your business maintains a healthy cash flow. This allows you to continue to offer extended payment terms without sacrificing stability and growth potential for your business.
- Fast access to working capital in as little as 24 hours
- Reduced stress caused by delays in invoices being paid
- Increased ability to take on additional government contracts
- Ongoing operations due to having funds to maintain supply chain, meet payroll, and pay overhead expenditure
- Flexible and scalable funding means you can grow your Invoice Finance facility along with your contract volume
In essence, instead of being at the mercy of slow-to-play clients, you can turn your invoices into immediate working capital to meet expense obligations and seize new market opportunities.
What can Invoice Finance be used for?
A customised Invoice Finance solution can suit just about any B2G contract, including:
- Transport services
- Logistics services
- Recruitment services
- Security services
- Cleaning contracts
- Facility management
- Healthcare
- Community services
With an advance on the cash you are owed by your government client, Invoice Finance allows you to manage seasonal demand, expand your business, or purchase materials and stock upfront.
How does Government Contract Invoice Finance differ from regular Invoice Finance?
Whilst the general principles are the same, government contracts often require more rigorous verification and authorisation. The ScotPac team of lending specialists will help you ensure you are using latest industry technology, so that you can quickly and conveniently upload outstanding invoices, view funding limits, and download reports as needed. On the flip side, government clients are considered to be low risk and with strong creditworthiness. This means approval for finance is often faster and the solution more flexible than standard invoice finance.
- Lower perceived credit risk
- More predictable payment patterns
- Easier facility scaling with contract volume
How can ScotPac help my business with government contracts?
We have been helping SMEs with fast and flexible funding for over 35 years.
As the largest non-bank business lender in Australia, we support over 9,300 businesses and fund $26.3 billion in invoices annually.
So, for an effective finance solution to manage long payment cycles with government contracts, make sure to speak to a lending specialist from ScotPac today!
Find out how ScotPac can strengthen your cash flow even with extended payment terms.