Why a signed award still leaves you short of cash
The government is about the safest customer there is, and one of the slowest to turn into cash. The bigger the award is relative to your business, the wider the gap.
- Day 0The award is signedAn award is the government's promise to pay for work delivered. It is not cash, and no money moves when it is signed.
- Weeks 1 to 8You spendHiring, payroll, materials, equipment, insurance and bonding all come due before there is anything to invoice.
- First invoiceYou billMost contracts pay on delivery or on a monthly invoice, after the contracting officer accepts the work.
- About 30 days laterThe agency paysThe Prompt Payment Act generally gives an agency 30 days from a proper invoice. A rejected invoice restarts the clock.
This is the point where contractors reach for the wrong money. A merchant cash advance will fund in two days and then take a cut of every deposit, including the agency payments you were waiting for. If that has already happened, read getting out of advances first.
Five ways a contract gets financed
Which one fits depends on what you deliver, who pays you and how long you have been billing. Most contractors end up with two of these working together.
Government receivables factoring
A factor advances most of each approved invoice when you submit it and sends the rest, less its fee, when the agency pays. It is underwritten on the government's credit and your ability to perform, which is why a young company with a real award can qualify.
Invoices to a federal, state or prime-contractor customer
Contract and mobilization financing
Capital advanced against the signed award itself, to cover the cost of starting: first payrolls, materials, deposits. Usually paired with factoring, which repays it as invoices go out.
A signed, funded award and a budget that shows the margin
Purchase order financing
For product and supply contracts. The financier pays your supplier directly so the goods can ship, and is repaid when the agency pays for them.
A firm order, a reliable supplier and a healthy gross margin
Working capital line of credit
A revolving line sized to your receivables. Cheaper than factoring once the business has a track record, and it grows as your billing grows.
A year or more of contract billing and clean financial statements
Equipment financing
When the contract needs vehicles, machinery or systems, the equipment secures its own loan or lease and leaves your working capital alone.
A quote or invoice for titled or serialized equipment
What a lender reads in your contract
The headline award amount is the number a lender looks at last. These come first.
- Funded value, not ceilingAn IDIQ or BPA ceiling is the most the government may order, not what it will order. Lenders underwrite funded task orders and obligated dollars.
- Contract typeFirm fixed price puts cost overruns on you. Cost-plus and time-and-materials put less margin at risk. The structure a lender offers follows from that.
- Who actually pays youA prime is paid by the agency. A subcontractor is paid by the prime, so the lender underwrites the prime's credit and payment habits, not the government's.
- Past performancePrior awards delivered on time are the strongest thing in the file. A first award can still be financed, on more conservative terms.
- What is already pledgedAn existing blanket lien, a tax lien or a merchant cash advance sits ahead of a new lender on your receivables. It has to be dealt with first, not hidden.
- Whether payment can be assignedUnder the Assignment of Claims Act a contractor can direct contract payments to a financing institution, with notice to the contracting officer. Lenders check that nothing in the contract prohibits it.
What we do, and what we don’t
- We are not a lender. Transparent Capital is a debt placement agent. We underwrite your file, build the package a credit officer wants to read, and take it to the lenders and factors it fits, out of 1,500+ we screen.
- You see the offers side by side. Lenders compete for the file and you choose. Nothing goes to a lender without your approval.
- We will tell you if it does not finance. A thin margin on a firm-fixed-price award, or receivables already pledged elsewhere, can make a contract unfinanceable as it stands. We say so, and say what would change it.
- We will not put you in an advance. If the only thing that fits is a merchant cash advance, we decline the file.
Questions contractors ask
Can I get financing with a government contract but no revenue history?
Often, yes. Factoring and contract financing are underwritten mainly on the award, the paying agency and your ability to perform, not on years of tax returns. A first-time awardee should expect more conservative terms than a contractor with past performance, and a line of credit usually comes later, once there is a billing history.
How long does the government take to pay a contractor?
The Prompt Payment Act generally requires a federal agency to pay a proper invoice within 30 days, and to pay interest when it is late. The practical gap is longer, because you carry payroll and materials for weeks before the first invoice can be submitted, and a rejected invoice restarts the clock.
Will financing my contract affect my relationship with the agency?
Assigning payments to a financing institution is a routine, statutory process under the Assignment of Claims Act. The contracting officer and the disbursing office are notified and payment is redirected. It does not change your obligations under the contract or how your performance is evaluated.
Does Transparent lend the money?
No. Transparent Capital is a debt placement agent, not a lender. We underwrite the file, build the lender-ready package and take it to the lenders and factors whose criteria it fits. Every financing decision and every term is set by the lender.
Related guides: construction, staffing, and how we underwrite a file.
We’ll tell you what it finances, and with whom.
Send the award and what you have of the rest. We’ll show you the cash gap month by month, which structures fit it, and which lenders are worth your time.
- The award or task order
- Your cost budget for it
- A/R aging (if you are billing)
- Last two years of financials
- Current debt schedule