How Can Purchase Order Financing Benefit Your Business?Posted by Factor Funding Co. on October 23, 2012
Do you own a manufacturing or resale business? If so, then you might be dealing with the cash flow problems that often plague companies of your type. Manufacturers and resellers frequently suffer from problems with cash flow, particularly since their clients may have up to three months to pay their invoices. In the meantime, the business still needs to continue purchasing supplies and inventory, which can put a real strain on the budget. Purchase order financing may be a good short-term solution for these types of issues. How can purchase order financing benefit your business?
What is Purchase Order Financing?
Purchase order financing is a cash advance arrangement that allows you to receive funding that covers the cost of your supplies or inventory for a specific client. When you agree to a purchase order financing contract, the lending institution will use the value of your job order to cover the costs of your supply purchase. When your customer pays off the invoice, the funds will go to the lending institution, which then sends out the remaining income after deducting its fee for the transaction.
Why Purchase Order Financing May Be Beneficial for Your Company
There are several reasons why purchase order financing can be a smart business solution for your company. For one thing, when you sign up for PO financing, you don't have to pass a credit check. This alone can be a good incentive to use PO financing rather than to apply for traditional bank financing. Since so many manufacturers and resellers who are new to the industry haven't yet established good credit, PO financing may be their only viable funding option. Instead of relying on the creditworthiness of the company owner, this financing option financing uses the creditworthiness of the customer to qualify the advance.
Yet another benefit of purchase order financing is the fact that it gives a company access to cash without requiring the company owner to take out a loan. PO financing is not a loan, which means that the business won't have to add any debt to the balance sheet. Rather, the arrangement is simply a cash advance.
Finally, purchase order financing offers cash flow flexibility. Since the financing is based on the value of job orders, the amount that can be advanced will always fit the prospective job. This means that the company owner won't have to reapply for financing to get enough funds to cover the necessary supplies for the project.
Purchase order financing can be of assistance to your company, particularly if you need capital to get supplies for an upcoming job. When you use purchase order financing to benefit your business, you can enjoy the assurance of having access to the funds you need to satisfy your clients.