Australian government contracts offer growth opportunities and stability to SMEs

The revised Commonwealth Procurement Rules (CPR) came into effect on July 1st this year, an initiative aimed at giving small to medium enterprises greater access to Government contracts. Federal Government departments and agencies are now required to source 20 per cent of their annual procurement (worth upwards of $70 billion annually in Australia) from SME suppliers. In addition, procurement officers must split up major projects into smaller components and approach multiple suppliers for tenders. While it’s still early days, these initiatives have the potential to deliver long-term growth opportunities for SME’s who, after navigating the stresses of the pandemic are now battling rising costs and inflationary pressure.

Government contracts have the potential to be highly lucrative as well as a long-standing source of income for SMEs. However, there are still a few hurdles (perceived as well as real) that can deter SMEs from entering the tender process.

Breaking down the barriers

Project scope – the sheer size and scale of some government funded projects mean that they are simply not viable for SME’s. This is being addressed by the new requirement that larger projects are broken down into smaller components.
Insurance requirements – SME’s have found themselves increasingly locked out of government projects due to insurance requirements and the need for financial guarantees. Tenderers are now only required to show appropriate insurance cover once successful (rather than at the outset).
Arduous process – the effort that goes into tendering for government contracts can be complex and slow with the time investment untenable for many smaller operators. Efforts have been made to streamline the process with steps taken to make tendering less of an upfront challenge for SMEs.
Façade tenders – many SMEs are of the opinion that tender outcomes are a foregone conclusion with government agencies favouring larger players. The requirement that 20 per cent of contracts are to go to SME suppliers will go some way to levelling the playing field.
Financial pressure – financial stress can hit SMEs at any point of the deal cycle, from having financial backing to support the tender, to upscaling their operations to meet the terms of the new contract, to delayed payment of invoices putting pressure on day-to-day cash flow. The Government’s ‘Pay on Time’ policy states that all vendor invoices must be paid within 30 days with e-invoices in 5 days, or risk interest charges.

Where previously government procurement contracts were for the most part awarded to large businesses (for whom meeting insurance requirements and funding wasn’t an issue), we can expect to see significant opportunities ahead for SMEs as the new initiatives take effect.

How invoice finance can help

Good cash flow is critical for any business. Businesses need cash to operate; pay employees, purchase or hire equipment, distribute their product – as well as cover rent and utility costs. Invoice finance is ideal for businesses providing goods or services to high credit customers like Federal or State Government. Rather than taking out a loan and additional debt to fund growth or a new project, an invoice finance facility gives businesses access to the funds from their invoices as soon as they are issued. This closes the gap between when invoices are issued and when the business receives payment, easing the pressure on SME suppliers.

In conclusion

While it’s still early days and economic uncertainties abound, the expectation is that greater access to government contracts will deliver a much-needed boost to Australian SMEs. Benefits may include access to new markets and growth, greater competitiveness driving innovation, higher employment and profits remaining onshore, boosting the economy. With barriers lowering, costs of entry more achievable and a strong pipeline of government projects at a national and state level, SMEs have an opportunity to leverage new business certainties, pursuing growth and expansion.

If your business is considering taking advantage of new government procurement opportunities, below is a list of resources that may be useful. Contact Apricity Invoice Finance today to find out how an invoice finance facility can help your business succeed and grow.