A not too uncommon situation business owners have getting an upcoming contract underway is the capital to get organized. A problem arises when assuming that a purchase order or contract award for a product or service will allow the business to get cash from a commercial finance company in order to perform on the contract. While there are purchase order finance companies and contract finance opportunities, the business owner needs to understand the limitations of each.
With both PO and Contract Financing the predominant factor will be the historical success of the company to perform. Does the company have a few years of doing what they do without troubles or hiccups from their customers. These finance companies rely on stepping into situations where everything is working fine except needing extra capital to resolve a big order. They also need to make absolutely sure the funding goes directly to making the deal happen, in other words, to purchase goods to be shipped directly to the end user customer. Funds cannot be used to pay off old bills and make payroll etc.
These financing transactions typically require the addition of invoice factoring. But accounts receivable factoring relies on an invoice, so work has to be completed and accepted, at least up to a point for billing. Usually the advance the factoring company provides, goes directly to pay off the balance due to the p.o. finance company. They work in tandem and require written contracts between them regarding the collateral.
When looking for loose capital to get a contract up and running, this is called mobilization money. Unfortunately factoring companies cannot offer any pre-billing capital. Mobilization funding is only available to companies with some positive financial history and also have other assets available to pledge. There are other methods of securing this up front capital such as getting extended terms from suppliers and selling parts of the company to raise equity investment or finding someone to offer a short term business promissory note. But for a factoring company to get involved with a new contract, the business must be able to jump start the work themselves.