Maintaining Cash Flow Under the Defense Production Act

In late January, the United States government brought the Defense Production Act to the table as a means of tackling the pandemic and accelerating supply chains for vaccines, medical equipment, and more. This means that manufacturers, distributors, suppliers, and businesses across all industries will be taking on government contracts to keep up with this new initiative. But how can these businesses keep up with demands if cash flow is already tight?

What is the Defense Production Act?

The Defense Production Act (DPA) was first deployed in the 1950s to shore up goods and materials to aid the United States military in overseas conflicts. Now, the DPA is being invoked to ensure we can fight COVID-19 and get the country back on track. This act opens up a number of opportunities for businesses who want to dedicate operations to assist in this purpose. Businesses that enter production to help with the initiatives to combat the pandemic enter into government contracts, and are compensated for their efforts.

Cash Flow and Government Contracts

In order for businesses to meet the demands laid out by the DPA, they have to maintain a healthy cash flow. Much like regular orders, invoices sent to government agencies are paid on staggered payment schedules. During those gaps in payments, businesses still need to make payroll, purchase supplies and materials for production, and cover general overhead expenses. To resolve the equation between production demands and staggered payments, businesses need a faster turnaround on invoices.

To boost cash flow to keep up with contracts, businesses use accounts receivable factoring. Unlike traditional loans, accounts receivable factoring does not place debt on the books. Instead, unpaid invoices are turned into cash and the funds are made available within 24 hours. This allows businesses to eliminate the lag between payments and boost cash flow to cover expenses, plus build up capital reserves in the process. At New Century Financial, we offer the most comprehensive accounts receivable factoring services. Whether you need to smooth out uneven revenue cycles, boost cash flow to cover production costs, or build up capital reserves, we can help. Contact the team at New Century Financial today to get started.