At times you may find the invoice payment terms offered by your business causes cash flow issues. Or, slow seasons could leave you without enough capital to fulfill orders. But your business can’t afford to lose clients.
Don’t let temporary financial management complications cost you your business. Continue reading to find the solution to help with your business finances. Purchase order financing could provide the business funding you need to stay afloat.
What Is Purchase Order Financing?
Purchase order financing funds your business using client orders as collateral. It allows you to accept client Purchase Orders (POs). Then you can work with financiers and suppliers to fill pending orders.
It’s like getting an advance on the funds you’ll receive from your client once their invoice gets paid.
Your business can get PO loans quicker than traditional loans from a financial institution. And you won’t have to worry so much about getting rejected due to poor credit scores. PO financing removes much of the red tape you encounter with other business loans.
Benefits of PO Financing
PO financing is a great option for new businesses. It provides the working capital needed to fulfill orders and build clientele. And with PO financing, your lender manages the collection of client invoice payments.
Your need for PO financing is time-sensitive. If managed right you can get financing without disruption to operations. This allows you to take on more clients, complete larger orders, and grow your business.
But as you can imagine PO financing presents risks to businesses, as well. What if your PO loan doesn’t get approved? And even if it does you could have to pay high financing fees.
PO Financing Process
Finding the money to allow you to make more money is not as difficult as you may think. All it takes is a client PO and a little effort from you to make the right connections. Here’s a look at how PO financing works:
- Process the PO received from your client
- Contact your supplier to confirm pricing
- Check if your business has enough capital to complete the order
- If you find there are inadequate business finances apply for PO funding
- Upon approval, the PO financing company pays the supplier
- Confirm product delivery; send the invoice to customer and lender
- Payment from the customer gets remitted to the financing company
When the lender collects payment they apply it to their financing fees. What’s remaining is then paid against the invoice total.
You may encounter times when the PO financing company doesn’t cover 100% of the order amount. In that case, your business receives a bill for any remaining balance.
You Have Options for Business Financing
Purchase Order financing should be a short-term solution for your business. Once you receive steady cash flow you can operate without the need for a financier. So the risks may prove favorable in the end.
Explore our website for products and services to answer your business’s financial questions.