In B2B deals, there are multiple points of risk. Buyers have to assess supplier risk; suppliers, meanwhile, have to assess risk when it comes to getting paid. And for the institutions that finance many of these deals, of course, there is a complex risk mitigation process to assess the creditworthiness of a borrower and its chances of getting paid.
It’s a complex web of assessment for any transaction. But when dealing with government contractors, the risk equation can change a bit.
Invoice financing firm Bibby Financial Services knows this well. The company has just inked a partnership with Dominion Capital Management Corporation in an effort to help small suppliers nail down government contracts.
Bibby Financial Services CEO of the Americas Leigh Lones told PYMNTS about the way working with government contractors changes the game for small suppliers and for the financiers that provide the working capital to make the deal happen.
The way Bibby Financial Services and Dominion’s partnership works, Lones explained, involves Dominion aiding small businesses in actually landing government contracts and navigating the bidding process. Once a contract is secured, Bibby then steps in to invoice up to 90 percent of an outstanding invoice while they wait to get paid.
For suppliers, working with government agencies can lead to more secure deals, Lones said.
“I think there is an interest, on their part, to support small businesses,” she explained of government bodies looking to do business with a small supplier. “They try to fulfill their end of the obligation.”
For lenders like Bibby Financial Services, that also means less risk.
“We would think government agencies are more creditworthy than some of the other businesses that our clients work with, from a risk standpoint,” Lones said, adding that Bibby Financial Services considers government players that are the paying source of these deals to be “first class” and “Grade A.”
“Therefore, we would tend to be more relaxed on providing more funding on these receivables.”
It seems like a no-brainer, then, for small businesses to work with government agencies. But it’s not so simple, Lones explained. There are several factors specific to business-to-government deals that can create friction, especially when it comes to suppliers getting paid.
[bctt tweet=”‘Working with government agencies can be time-consuming.'”]
“Working with government agencies can be time-consuming,” she said. “There tends to be a bit more paperwork involved. There is a tendency for government agencies to be a bit more cautious for compliance purposes.”
Both Bibby Financial Services and Dominion help small businesses navigate that process of handling paperwork. But more forms and documents mean more room for error, which means running the risk of late and incorrect payment.
“If the paperwork is not submitted correctly, then there is a delay in payment,” the CEO explained, adding that once a business gets funded, Bibby then continues the relationship by aiding in the payment collection process.
According to Lones, government agencies don’t typically diverge from the average corporate buyer when it comes to paying suppliers on time — that is, if all goes correctly.
“In this day and time, government agencies are really no different than any other party out there paying against invoices,” she said, “provided everything is submitted timely and as agreed. They’re not particularly slow if you follow the procedures involved.”
With compliance weighted even more heavily in government deals, suppliers can get tripped up easily and run into cash flow issues. But, with some help to sort out the paperwork, small suppliers (and their financiers) can benefit from lessened risk in working with the government.
“If the paperwork is done properly and we don’t have any issues, then they actually pay, in my opinion, sooner than others,” Lones said of suppliers working with government agencies. “Dominion is on the front end, and we’re on the back end, funding and ensuring the paperwork is submitted properly and contract terms are fulfilled. And everyone wins in the end.”