Insights

Government Contract Financing: Surviving Net-60

Government contracts pay reliably and slowly. How working capital bridges the net-60 gap, what the bridge costs, and when funding the wait is the wrong move.

Your most reliable customer is about to be your slowest. That is the cash-flow problem of government work stated in one sentence: the agency that will absolutely, certainly pay your invoice is also the one that will take sixty days to get around to it — and your crew gets paid on Friday either way.

We fund government contractors regularly, and the pattern that works is worth understanding before you chase the next award, because the fix is not to change the government's clock. Nobody changes the government's clock. The fix is to pair a slow-but-certain payer with a fast-but-finite source of capital, and to be deliberate about which one is doing which job.

Slow is not the same as risky — and an underwriter knows the difference

Here is why government money moves the way it does. You perform the work, you submit an invoice, and then a chain starts: an approving official has to accept the invoice, any error or missing attachment sends it back to the start of the line, and only an accepted invoice starts the payment clock. If you are a subcontractor on a public job, add a layer — you invoice a prime who is riding that same clock before your share moves at all. Net-30 on paper often lands weeks later in the bank.

Now notice what that receivable is not: doubtful. The agency does not go out of business mid-project, does not dispute in bad faith to conserve cash, and does not quietly stretch you because its own customer is stretching it. Slow money is a scheduling problem. Doubtful money is a different problem entirely, and it deserves different tools.

Net-60 is arithmetic you can do before you bid

Put visibly hypothetical numbers on it. Say a services contract bills an agency $75,000 a month, and performing each month of work costs you $58,000 in payroll, materials, and overhead — all of it paid in real time, none of it willing to wait. By the time the first invoice is accepted and paid somewhere past day sixty, you have floated roughly two months of performance costs, call it $116,000, out of your own account. The job is profitable on paper the entire time. Paper does not make payroll.

That float is the thing being financed — not the contract, not the agency, not the award letter. Which is why the comparison that matters is not this funder versus that one. It is your customer versus your capital source, and what each is actually good at.

How the funding actually works on a government job

This is the part that surprises owners searching for how government contract financing works: at a direct lender, the underwrite is your business, not the award. We read monthly deposits, their consistency, time in business, and what is already committed — the same file we read for any business doing $250,000 or more a year in revenue with at least a year of history, with funding from $10K to $350K sized to what those deposits support.

The contract still matters, just not as collateral. Government work makes bank statements lumpy — large deposits on payment days, thin stretches between them — and an award letter with an invoice schedule explains exactly why. A lumpy pattern you explain is context. One we have to puzzle out is a question, and questions cost days.

1. 1

   Apply with your bank statements — and bring the contract

   The application runs on recent business bank statements. The award letter and your invoicing schedule are the context that makes a government-shaped deposit pattern read as what it is.

2. 2

   The decision happens in-house

   A direct lender underwrites its own capital, so the file never leaves the building — that is the entire mechanism behind decisions made in-house, often the same day, instead of weeks in someone else's committee.

3. 3

   Carry the work while the invoice rides the clock

   Funds land and cover payroll, materials, and mobilization while the agency's approval chain and payment cycle run. The work never has to slow down to wait for the money it already earned.

4. 4

   Agency payments clear the balance

   The total payback is fixed and known before you sign, sized to what your deposits support — and each government payment that lands is exactly what keeps that schedule comfortable.

On cost, do the math in dollars, not percentages. Say you borrow $100,000 and your total payback is $110,000 — a fixed $10,000 cost, known before you sign. The question is never whether $10,000 is a lot of money. It is whether performing this contract on time — and being positioned to win the next one — earns meaningfully more than that. Price the capital into the bid the way you price fuel.

When bridging the payment is the wrong move

We turn down this use of funding in three situations, and you should turn it down in the same three.

• The invoice is disputed, not slow. If the agency or the prime has rejected your pay application, there is no payment date to bridge to — borrowing against an argument turns a paperwork problem into a debt problem. Fix the paperwork first.
• The margin cannot carry the cost. If the bid only works when every dollar arrives on time and nothing was priced in for capital, funding does not rescue the job — it thins it further. Some contracts should be renegotiated or declined, not financed.
• The gap is permanent. If every job on your book pays net-60 and the squeeze never actually ends, that is a structural mismatch, not a bridge. A standing tool built for receivables, such as invoice factoring, or bids repriced to reflect your customers' terms, may fit that book better than repeated short-term funding.

Working capital is a bridge. A bridge needs a far bank — a real date when real money lands. When that date exists, this is one of the cleanest uses of funding there is. When it does not, the honest answer is that funding is the wrong tool, and a funder who tells you so is worth keeping.

The relationship compounds — because the government keeps paying

One of our longest-standing clients funds government contracts with us again and again — a new round for each new job, with the amounts growing as the relationship has grown. Nothing exotic made that possible. Every completed cycle — funded, performed, invoiced, paid, cleared — became evidence in the next file.

That is worth knowing before your first application, because history with a lender is one of the handful of factors that genuinely shape terms, alongside revenue, credit, and how much of your cash flow is already committed. Each new round is a new underwriting decision — paydown conventions vary, and history never makes the answer automatic — but it makes the read faster and better informed every time. On government work, where the payer shows up reliably for years, that compounding is the quiet, long-term payoff of surviving your first net-60 cycle well.

Keep reading

Guide

Funding a Contract You Just Won

Use case

Bridging Slow-Paying Customers

Calculator

Payment Fit Calculator

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Cost of Capital Calculator

Glossary

Days sales outstanding (DSO)