3-min read Feb 24, 2022

How Can Government Contractors Benefit From Payroll Financing

How Can Government Contractors Benefit From Payroll Financing

Businesses that work with government agencies frequently find themselves short on cash. This is due to the fact that government reimbursements often take weeks or even months to arrive. As a result, many businesses are left with a major gap in their accounts receivable. Payment periods can take between 30-60 days (if not longer), while staff payroll is usually submitted on a weekly or bi-weekly basis. Though many businesses turn to government contract factoring, has its downsides. Fortunately, when looking for alternatives, government contract financing is not the only other option. A business loan to cover payroll is one of the best and most cost-effective ways to prevent cash flow issues — without hurting your bottom line.

How Red Tape And Long Pay Periods Cause Cash Flow Issues

It is important to note that many businesses working with government contracts have to cut through a lot of red tape. While this may not be as much of an issue for larger businesses, small business owners may struggle to maintain a balanced budget when government orders and reimbursements are delayed due to regulatory issues. As a result, a short-term injection of funds can help these businesses cope with the subsequent cash flow and payroll issues.

Regardless of the cause, cash flow issues, and, by extension, payroll issues, can affect just about any business that accepts contracts from municipal, state, or federal government agencies, including:

  • Manufacturers
  • Distributors
  • General Contractors
  • Independent Contractors/Subcontractors
  • Property Services Firms
  • Architectural Firms
  • Engineers
  • Urgent Care Centers
  • Medical Offices

Real-Life Case Studies On The Benefits Of Payroll Financing

Here are just two quick examples that illustrate how payroll financing can provide a valuable, low-cost solution to your cash flow issues:

  • A contractor had secured a government contract that required the full time and attention of the entire business, pulling resources away from all other orders. This meant that the business had virtually no income while they waited on government reimbursement. Thankfully, we were able to provide payroll funding in the meantime, ensuring that they did not have to rely on expensive government contract financing.
  • A small manufacturer needed to fulfill a substantial purchase order, but the owner was worried about paying for the costs of a bulk order ahead of time. Rather than depending on costly government purchase order funding, we provided the low-interest cash they needed to pay for the order and sustain the business while they awaited reimbursement.

The Bottom Line

These examples are extremely common for government contractors. In some cases, businesses may need one-time financing just to get over the hump, while others may need to utilize payroll funding on a more consistent basis. Either way, payroll financing is a great way to keep your business finances healthy and avoid the pitfalls of government contract loans.

Cash flow issues may affect many businesses, but it doesn’t have to be your norm. If you need low-cost, short-term financing for your business to operate efficiently, call Payro Financetoday to see how we can help.

Morris Reichman


Morris Reichman is the founder and CEO of Payro Finance. Former Vice President at Infinity Capital Funding an alternative finance company, Morris possesses a versatile background in the finance industry. Having spent 7+ years working across global macro operations and start up corporate finance Morris's expertise is in business accounting, risk management and investment analysis. Morris founded Payro Finance to support business owners and ensure their business continuity.

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