Financial fear can cripple a business by limiting the taking of risks, causing undue worry about taking on large projects or orders, and stunting growth in a way that could lead to a sharp reduction in capital over the short and long term life of your business. What if you lose a customer because you cannot afford to make a supply order to complete the project being offered?
If you want the flexibility of ordering supplies and materials now, while not limiting how many orders your business can feasibly and financially shoulder at one time, purchase order funding could be your answer.
What is Purchase Order Financing?
Purchase order funding, also called purchase order loans, production financing, or pre-delivery financing, is used by a purchasing business and will provide an advance payment - a short-term financing program - or assurance to a supplier on behalf of the purchasing business. Many factoring companies will work with situations that are non-bankable, rapid turnarounds, and those who experience high rates of growth either seasonally or due to changes in the specific market.
Purchase order loans are not, in fact, a traditional loan, they do pay the supplier and handle collections on the supplier if that need arises, they allow you to take on sizeable projects you may not have before due to pre-project costs, and approval does not require A-1 credit.
How does the Purchase Order Financing Process Work?
A purchase order loan will allow your fill the orders of your customers, no matter how large they may be. This will be accomplished in conjunction with the lender (factor) and may include using the advance payment as a new stream of capital, an assurance of client payment, or a guaranteed payment via either a check bank transfer or an LOC (Letter of Credit). The purchase order financing will range between 70% of the purchase order to financing 100% of the cost of the goods
Before you engage in the negotiation of a purchase order loan contract, you need to understand the advantages of purchase order loans for your business.
3 Ways Purchase Order Loans Can Grow Businesses
- Keep your equity where it belongs – purchase order loans are transactional and thus do not require you to relinquish any equity when the transaction has been contractually completed. If you have a startup business and growth is vital, keeping the equity within the business model you have developed is important to your company’s future progress.
- Purchase Order Loans scale easily – No company wants to become entangled with an agreement or organization so vast and overwhelming that that they cannot make other situational decisions for growth. Purchase order loans are ideal for startup or mid-sized businesses, especially, because they can show as much growth or contraction as the business needs in that fiscal period.
- Purchase Order Loans allow for preparation rather than being a reaction – If most of your equity is tied up in a warehouse and you need to build up your inventory in preparation for an upcoming wave of project-based negotiations, purchase order loans will allow you to do just that. No longer will you have to inform a client that it may take weeks to get the materials and supplies on-site. Purchase order loans allow you to anticipate and prepare for growth in a way that you could not previously by allowing you to build up your stock to growth-based levels.
Don’t let fear cause stagnancy in the fluidity of your cash flow, especially if you are a small to medium-sized business that is ideal for acceptance in a purchase order funding program. Find a purchase order funding program that will work with you and for you.
Keep the materials and supplies coming in so that the contracts and orders may follow. Growth can often be worrisome if you do not have the materials and supplies on hand from which you can base and anticipate that growth. Never be in that situation again! Try purchase order loans and think of your business as what it can be rather than what it has been.