Many businesses encounter opportunities for large orders but lack the available cash needed to fulfill them. A solution to this dilemma is purchase order financing, which enables you to acquire the inventory to handle the orders so you can continue to grow your company. Here is what you need to know about this method of funding.
The Basics of PO Financing
The steps to implement PO financing are straightforward. When you realize that you will need funding to fulfill a purchase order one of your customers has submitted, you first ask your supplier for an invoice detailing the costs. You then apply to a lender for PO financing. After assessing various factors such as your company’s qualifications and the creditworthiness of your customer, the lender agrees to fund 80 to 100 percent of the order. The lender sends the money to your supplier and the supplier ships the goods directly to your customer. After you deliver the invoice, your client pays the lender instead of you. The lender then sends you the payment after deducting its fees.
The Right Time to Implement PO Financing
PO financing can assist distributors, wholesalers, resellers, and other types of businesses in funding their purchase orders. This method of financing is especially effective when you experience periodic difficulties with cash flow, drops in income between sales seasons, and rapid surges in growth that outpace your incoming cash.
Qualifying for PO Financing
Companies that qualify for PO financing typically sell completed products to B2G or B2B clients. Their orders are for a minimum of $20,000 and their profit margins are 15 to 20 percent or more. Your suppliers must be reputable, and your customers must have good credit histories.
Benefits of PO Financing
One of the great benefits of PO financing is that it is easy to qualify for, even for startups. You can obtain funding for your purchase orders even if your credit score is low because lenders are mainly concerned with the credit histories of your customers. The purchase order backs the loan you receive, so you don’t generally need collateral or a personal guarantee.
For more advice on PO financing, contact Rushview Commercial Funding.