Landing a large defence contract should be cause for celebration, but what if it’s larger than you can handle?

There are over 2,000 small and medium enterprises (SMEs) throughout Australia providing services such as software development, precision manufacturing and specialist engineering for the defence industry.

Many of these businesses do not work directly with Defence, but as part of a supply chain assisting larger companies with Defence contracts.

Once you receive an official purchase order contract is in your hand, a quick calculation reveals that you’re going to stretch the budget every which way. Putting the rest of the business at risk is something you’ve now committed to, or it’s giving up the order you’ve fought to win.

It’s often a long road of the “grit and grin”, handshakes and lunch dates to win a defence order.

Once you’re on the Australian Industry & Defence Network (AIDN) chances are performing is your only option. So how can you fund the order that far outweighs your ability to finance the order internally or from banks?

Purchase Order Financing can bail you out.

Purchase Order Finance is a short-term transaction-based financing tool that allows defence contractors to purchase or manufacture goods that have been presold to the Australian defence force or other government agencies.

It’s an equity alternative enabling companies to achieve sales and profits otherwise not attainable without diluting existing ownership or losing operational control.

It can operate as bridge financing working alongside a company’s existing financing facility (asset-based lender, factor, or traditional line of credit) depending on the strength and type of senior lenders.

This type of funding closes the cash flow gap that exists between payment to the supplier and repayment from the end customer.

Suppliers require payment before production starts or prior to shipment, whereas end customers demand payment terms once goods have been delivered.

The amount of funding that a purchase order financier provides is dependent on the size of the defence purchase orders or contracts.

Once your sales are outpacing available financing lines, equity or capital, you’ll need to seek alternative funding that’s based on your opportunities, rather than past trading history.

Need help fulfilling larger defence contracts? Ask Stak.

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Stak provides working capital to clients that sell to some of the largest buyers in Australia & overseas.