What Is Contracting?
It’s important to understand the fundamentals of the process before you begin to position your company for contracting – and advisable to consult with an attorney prior to entering into or negotiating a contract.
In the world of business, contracts are most often used by three parties to manage relationships: purchasers, suppliers, and partners. The parties, which can range from small businesses to the federal government itself, work together to establish clearly defined terms and conditions. Typical arrangements involve:
- Leasing agreements
- Receiving and quoting
- Borrowing money
- Engaging independent contractors
- Renting equipment
- Tendering and quoting
- Credit agreements
- Strategic alliances
- Joint ventures
- Franchise agreements
- Dealership/distributor agreements
Government contracting can be a very lucrative and competitive marketplace for businesses of all shapes and sizes. With contracts available on both the state and federal level, there is much to learn and be prepared for. Getting diversity or other certifications can help a business win government contracts, and just bidding on some government contracts may require having a Dun & Bradstreet D‑U‑N‑S® Number. Understanding the GSA Schedules Program can also be helpful when searching for government contracts that are right for your business.
And because government contracting can be so competitive, many business owners have started to use “capabilities statements” as a tool to help showcase their companies. As the marketplace becomes increasingly muddled with business cards, emails, and complicated business descriptions, a capabilities statement can help distill the most important company information in a clear and concise manner, so that it is easily accessible to clients and customers.
Public Sector Contracting
The public sector is any institution that the government has a substantial interest in. It can include military, law enforcement, sanitation, schools, and many other services. The bidding process for public sector contracts is similar to that for government contracts in that the requirements can vary from institution to institution.
Corporate Supplier Contracts
Many corporations have supplier-diversity programs (view a list of Fortune 500 supplier programs here), but since these corporations are often large businesses, they usually have high standards for the companies they contract with. The benefits of a corporate supplier contract can be enormous, but winning one can be tough. Getting a diverse business certification can help and so can having a strong business credit file. Many large corporations check a business’s credit file before deciding whether or not to bring it into the supply chain. Being able to help show that your business isn’t likely to go bankrupt or to deliver late on terms can be an asset when applying for contracts. You may also want to monitor trends around supplier issues and supplier-diversity issues to help keep your business at the cutting edge of corporate contracting.
Getting your product into stores, especially big-box stores, can be a challenge. But contracts like these can help grow your business by leaps and bounds, as well as help make your brand recognizable. Getting in front of more consumers can be key to running a successful retail business. Brett Thompson, Co-Founder and CEO of Pork Barrel BBQ, learned how challenging retail contracts could be while trying to grow the business. After taking action to help impact Pork Barrel’s business credit file, the company was able to land contracts with some of the nation’s largest retailers. “What we found is when we sat down with a nationwide retailer, when we sat down with a bank looking for a line of credit, and they accessed our Dun & Bradstreet credit file and saw that we had good business credit scores, it opened a lot of doors and a lot of opportunities. And so just like with your personal credit - you know how important that is if you want to get the mortgage or the auto loan - it’s the same thing for your business.”
Manufacturers are often part of a supply chain, and a chain is only as strong as its weakest link. In order to get contracts as a manufacturer, it can be beneficial to provide evidence that your business won’t be the weak link in a supply chain. Building and monitoring your business credit file is a simple way to help portray your company in the best possible light. Custom Powder Systems used its business credit file to help show Fortune 500 companies that it could deliver on contracts, and this helped it grow its business. Hear the full story:
Construction businesses do most of their work through contracts, and winning bids consistently can be the difference between a successful business and a failing one. In order to win a contract, the business will usually have to prove it can complete the project on time, do the best work for the best price, and meet all legal guidelines and codes. Past projects can show a prospect how good a business’s work is, but business credit scores and ratings can suggest whether the business is more likely to meet deadlines, pay workers on time, and stay in business long enough to complete the project. Bjork Construction learned firsthand how the company’s business credit file could help impact success, and Bjork used its file to help grow the business and get new clients. Learn more:
Critical Contracting Questions
No matter what type of contract you’re interested in pursuing, it’s important you ask yourself these questions prior to coming to any agreement (and remember to consult with an attorney when negotiating or drafting agreements):
Does the contract meet your business objectives?
What do you want out of the relationship? What does the other party want?
Does the relationship present any potential risk? If so, who bears it?
Are your expectations clear to the other party? Do you understand each other’s needs?
What are the chances something will go wrong?
Answering these questions can help identify and clarify objectives and can help mitigate potential risk associated with contracting.
How Business Credit Affects Contracting
Going into business with another company can turn out to be a really good investment or a really bad one, but the potential risks involved don’t have to be a complete mystery to either party. A Dun & Bradstreet D‑U‑N‑S® Number can be used to establish a business credit file, which can help create transparency and build credibility, and having favorable Dun & Bradstreet scores and ratings in your business credit profile may help you land contracts.
And as the proffering company, it can be a good idea for you to help mitigate risk before entering into a contract by checking your potential partner’s Dun & Bradstreet business credit report. The information in the report can help highlight the company’s past transaction and fulfillment history and help indicate if your potential partner is likely to deliver or pay its lenders on time. In addition, a business credit report can help predict the likelihood that a business will cease operations in the foreseeable future.
Because many businesses can perform a background check on your business before signing on the dotted line, managing your Dun & Bradstreet business credit profile can be especially important, particularly if your business is competing for contracts. The information in your business credit report can be a factor in helping you frame your business as successful and trustworthy, and your company’s business credit profile can be one of the most significant components to help demonstrate its credibility. Your business credit file may be one of the deciding factors for your potential partners as they consider your bid – a positive profile may help you win a contract.
There are many other reasons your business credit report can be important for you as a contracting-reliant company:
Insurance – Some companies require that you have bonded insurance in order to work with them. And some insurance companies require you to maintain your Dun & Bradstreet scores and ratings above a certain threshold in order to keep your policy active.
Terms and Conditions – When negotiating terms and conditions, some suppliers have leveraged their good business credit profiles to get paid on a more favorable schedule than initially offered.
Access to Capital – If for some reason you are unable to collect on your receivables in a timely manner (for example, a big customer experiences financial distress), you may need to access short-term capital in order keep your business running and meet expenses while you’re waiting to be paid. Some lenders require that your Dun & Bradstreet scores and ratings be above a certain threshold before they will consider your loan application.
Subcontracting and Supply Chains – If you’re a small business and are interested in subcontracting or becoming part of the supply chain, monitoring and influencing your business credit report and credibility can sometimes be more important than it would be for a larger business. Small businesses usually do not have an established reputation, so ones with a strong credit profile can look more impressive than those without one, to companies they are trying to partner with.
Want to learn more about how business credit can affect your business? Check out the rest of our business credit guide.