In New Zealand, government agencies spend approximately $51.5 billion dollars (around 20% of GDP annually) procuring goods and services from third party suppliers. In September, the government released their response to the New Zealand Infrastructure Strategy 2022 outlining infrastructure and construction policy to combat challenges like inflationary pressures and climate change. This strategic investment presents a significant opportunity for SMEs.

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 SMEs.
• Insurance requirements – SMEs have found themselves increasingly locked out of government projects due to insurance requirements and financial guarantees.
• 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.
• Façade tenders – many SMEs are of the opinion that tender outcomes are a foregone conclusion with government agencies favouring larger players.
• 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.

Historically, a significant number of government procurement contracts were awarded to large businesses (for whom meeting insurance requirements and funding wasn’t an issue). Now however, we are seeing more opportunities ahead for SMEs as the government commits to greater access for New Zealand businesses, including Māori, Pasifika and regional businesses. This commitment helps to level the playing field and has the potential to become a real game changer for SMEs.

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 the 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 can deliver a much-needed boost to New Zealand’s 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 nationally, 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.

Resources:

Tendering resources:
https://www.gets.govt.nz/ExternalIndex.htm
https://portal.tenderlink.com/lgol/login?ReturnUrl=%2Flgol%2F
https://www.business.govt.nz/how-to-grow/boosting-sales/tips-for-tendering/

Apricity Finance resources:
https://www.apricityfinance.com/making-the-most-of-tendering-opportunities/
http://apricityfinance.com/lp/eBook/bbus/index.html#ebook