Factoring requires a business to have invoices, or accounts receivables, available for the factoring company to purchase. When a company hasn’t yet generated any invoices but still requires immediate funds, factoring isn’t a viable solution. In these situations, many businesses can turn to purchase order (PO) funding for financing. PO funding gives a brand the money it needs to have goods available to clients before issuing an invoice. Find out if your business qualifies for this exceptional service.
Businesses with Non-Cancellable POs
If your business operates on consignment sales, guaranteed sales terms, or cancelable orders, a PO financing company will not see you as a good candidate. Purchase order financing companies need assurance that your customers will go through with the sale and not change its terms. PO financers will not agree to give you advance payments on uncertain orders. Some requirements for PO financing include:
- You must receive purchase orders from your buyer for a pre-sold, tangible product
- The order must be non-cancellable and not sold on consignment
- Your customer must be legally registered and creditworthy
- Preferably, the PO is for finished goods
- Guaranteed payments issued directly to suppliers on your behalf
If your purchase orders follow these general guidelines, you are likely a candidate for PO financing. You will need to supply documentation that your business and POs qualify for this service before a company will sign an agreement with you.
Business that Need Short-Term Financing
Purchase order financing is not a long-term funding solution. Instead, it supplies fast funds to companies in the short term. Importers, exporters, distributors, manufacturers, assemblers, and wholesalers that experience slow seasons, new product launches, or rapid growth benefit the most from PO financing. In these situations, a short-term cash boost is all the company needs to overcome a sales lag and keep business running smoothly. If your brand is in a financial crisis and needs a long-term financing solution, PO financing may not be the right choice.
Businesses with Big Jobs on the Horizon
When opportunity knocks to take on a major job, you don’t want to have to say no because you don’t have the resources. Since your business won’t receive payment for all the labor and materials until after you finish the job, you may not have the cash to accept the job. Purchase order funding solves this problem by providing your company with the money you need to buy supplies and equipment before you have an invoice to factor. PO funding gives you an advance on the money you need to accept big jobs, thus enjoying optimal business growth from top clients.
Businesses with So-So Credit
Traditional loans often come with a perquisite for stellar credit. PO financing can be the ideal solution if your brand has mid to poor credit or no credit at all. PO financing and invoice factoring companies are less concerned with the creditworthiness of the businesses it buys from and more with your customers’. After all, it’s your customers’ ability to pay that makes a factor profitable, not your own. If your credit has been a deterrent in securing a business loan, PO financing could be your answer.
Businesses that Only Need Funds for Production Costs
One of the main benefits of invoice factoring is the flexibility companies have in the use of the funds they receive. PO financing does not come with the same freedom. Your brand has to use PO financing funds to pay for the production of a product. You cannot use the money for new hires, payroll, or daily operations. If your business needs financing only to complete a client order, PO financing is a solid option. Otherwise, consider invoice factoring or another source of funding.
With the right prerequisites, your business may be the perfect candidate for purchase order financing. If you believe that you could benefit from PO financing, get in touch with a factoring company today.