Mar 6, 2023
The primary objective of any business is to generate revenue and subsequently collect that revenue. However, when the process of collecting revenue becomes challenging, the business may encounter cash flow issues.
According to estimates, 70% of profitable businesses go bankrupt due to cash flow problems. Furthermore, small businesses that plan cash flow only once a year are almost three times more likely to go bankrupt compared to those who plan monthly.
Given the criticality of cash flow planning, it would make sense for more small businesses to pay attention to this management tool. Unfortunately, many business owners may not know how to or may not realize the importance of cash flow planning. Additionally, they may lack the knowledge or expertise to execute it properly.
A wise business owner would seek the assistance of a professional or an organization to help with this vital task. This task can become more burdensome for businesses that are government contractors, as the factors that affect cash flow may be more dynamic. Therefore, it is prudent to engage an expert to help small businesses in this area.
Besides, sometimes it becomes unavoidable to prevent cashflow issues even when you do all the planning. In such cases, you can get financial assistance in the form of invoice financing and loans for government contractors by a reputable financing company, such a Royale Capital.
One of the primary factors that affect your cashflow is untimely payment. Normally, dealing with the government provides an advantage since they have sufficient funds and will pay on time, assuming that the invoice is properly submitted.
However, ensuring the invoice is submitted correctly is the challenge. Like many government activities, billing the government entails a lot of rules, requirements, and proper protocol.
The first and most critical requirement is for the contractor to be registered in the Central Contractor Registration system, now called the System for Award Management(SAM), which combines CCR registration and ORCA certification in one place.
If a company is not appropriately registered here, the government will not process the submitted invoice. Additionally, the invoice must include a Dunn & Bradstreet Number(DUNS #) and a Taxpayer Identification Number (TIN #).
While these might seem logical steps, sometimes a small business may either forget or be unaware of how to obtain and utilize them in the invoicing process.
Several years ago, the government utilized a Standard Form (SF 1034) for most invoicing purposes. This form, being a government document, was occasionally challenging to determine the necessary information.
Making an error resulted in invoice rejection, causing the contractor to correct and resubmit it, which obviously led to cash flow delays. Today, most of the submission is electronic through systems such as the Electronic Data Interchange (EDI) and the Web Invoicing System (WInS), which are mostly replaced by the Wide Area Workflow(WAWF) system.
However, the WAWF system can be intricate for untrained individuals to navigate and input the correct information. Mistakes can lead to invoice rejection and payment delays, which can severely impact the cash flow of a small business. To avoid this factor, small business owners can hire someone, such as Reli Ascent, who is familiar with the system, to process invoices to the government.
This will minimize the risk of having to learn the details of a complex procedure for submitting invoices to get paid, allowing business owners to focus on running their business.
Maintaining a steady cashflow is essential for any business to sustain itself. The US government is required by law to pay small and medium-sized businesses (SMBs) in a timely manner for services rendered under contract. The Prompt Payment Act mandates that, if the business has fulfilled its contractual obligations, the government must pay within 30 days of receiving a proper invoice.
However, even with these safeguards, government receivables can be challenging to collect. The 30-day payment period begins only when your invoice is received and deemed proper under the law. If it is not, it will be returned to you within seven days with an explanation of why it was rejected. You will then need to correct it, resubmit it to the government, and begin the 30-day wait again.
The government's policy is to pay all contractors via electronic funds transfer (EFT) whenever possible. To receive payment, your company must be registered correctly in the Central Contractor Registration (CCR) database, which the government uses to process EFT payments.
Failure to be correctly registered in the CCR database will cause the government to delay payment until the correct information is entered. It is your responsibility to keep the information in the CCR database up-to-date and accurate.
Submitting an improperly formatted invoice or failing to be correctly registered in the CCR database can lead to payment delays and disruptions in cash flow.
The U.S. Federal Government is the world's largest enterprise and the top purchaser of goods and services worldwide, with a market worth of over $100 billion in sales for small businesses each year. For small and growing businesses, government contracts can be an excellent source of revenue, with many contracts having 3–5-year terms.
However, there are financial challenges associated with servicing these contracts, and cash flow gaps can arise that may hinder the ability to deliver. To address these challenges, small businesses often rely on government contractor financing.
Maintaining reliable cashflow is a top priority for business owners, given the unpredictable nature of government spending. Government contractors must operate in a volatile environment as budget cuts, re-appropriations, and consolidations may occur within the agencies.
Additionally, contractors must be prepared for sudden contract change orders and terminations that can disrupt their operations since the government reserves the unilateral right to redirect priorities. Therefore, business owners must implement a flexible funding strategy that ensures access to working capital.
Invoice factoring is the best financial strategy that provides an ideal financing option for government contractors.
If you are looking for financing and loans for government contractors, look no further than Royale Capital. We analyze your financial situation and offer the best financing option to you to ensure that your business keeps growing and thriving.
