Winning a government contract is a milestone worth celebrating. But for many contractors, the celebration fades the moment they realize the money isn’t coming for 30, 60, or even 90 days, while the work (and the bills) start immediately.
Key takeaways
- NET 30 and NET 60 mean payment is due 30 or 60 days after an approved invoice, so the real gap is usually longer than the number in the contract suggests.
- Profitability and cash flow are not the same thing. You can be profitable on paper and still be unable to make payroll.
- A cash reserve equal to one to two payroll cycles turns the NET 60 gap from a crisis into a non-event.
- Secure a line of credit while your numbers look strong, lenders prefer healthy businesses to desperate ones.
Why NET 60 Exists
Government agencies and prime contractors operate on structured payment cycles. NET 30 and NET 60 terms mean payment is due 30 or 60 days after an approved invoice, not after you finish the work, and not after you submit the invoice. Between performance, invoicing, approval, and disbursement, the real gap is often longer than the number on the contract suggests.
The Math Nobody Does Before Signing
Here’s the trap: you win a contract, mobilize your team, buy materials, and run payroll, all before a single dollar arrives. If your contract is worth $200,000 over six months, you may need to float tens of thousands in labor and materials before your first payment clears. Multiply that across two or three contracts and the “profitable” business suddenly can’t make payroll.
The lesson: profitability and cash flow are not the same thing. You can be profitable on paper and still run out of cash.
Three Ways to Bridge the Gap
- Build a cash reserve. The cleanest solution. A reserve equal to one to two payroll cycles turns the NET 60 gap from a crisis into a non-event.
- Secure a line of credit before you need it. Lenders like healthy businesses, not desperate ones. Set up a line while your numbers look strong so you can draw on it during the gap and repay it when payment lands.
- Use invoice factoring or milestone billing. Factoring advances cash against approved invoices; milestone billing structures the contract so you invoice at defined checkpoints instead of only at the end. Both shrink the window you have to self-fund.
The Real Lesson
The NET 60 gap isn’t a reason to avoid government work, it’s a reason to plan for it. Contractors who model the gap before they sign, and who put a bridge in place, grow with confidence. Contractors who ignore it end up scrambling for cash on contracts that were profitable all along.
Ready to close your cash flow gap?
Start with the free cash flow training, then book a GovCon financial readiness call.
