The Benefits of Purchase Order Financing
Not all companies will have the stock on hand to meet each purchase order as it comes in, especially if a larger-than-normal order comes in. If you do not have the stock, or the funding for the up-front costs of getting the stock, you may have to turn that order down. This can cause a bruise on your company’s reputation as well as lost income. With purchase order financing, you can get the help you need to meet each order and help your company expand in both reputation and business.
Meet Bigger Orders
Purchase order financing can help you meet bigger orders as your company grows. The process works by you applying with a purchase order company for funding and that lender researching the payment ability of your customer. This can help you determine whether you would get paid for the order in a timely manner as well. The lender will then give you a letter of credit to take to your suppliers for the items that you need. Being able to take on increasingly larger orders is key to expanding your company and meeting the goals you may have for the business. This means having access to the products and services that you need to fill those orders and the funding to get it done without skipping bill payments or putting too much of a burden on your company. You may still have some fees associated with purchasing the items you need with this type of financing, but it will be more manageable than the whole cost of buying and shipping the supplies.
Once you have met the purchase order and your client has the goods, you will invoice that customer. If the client pays quickly, the lender will take the amount of the advance as well as a fee out of that payment and give you the remainder. If the customer has a longer term of repayment, then the lender may buy the invoice from you at a discounted rate. In this second scenario, the collection on that invoice is no longer in your hands and you will not have to worry about it being fulfilled.
Purchase order financing can be a huge help, especially for smaller businesses which rely on purchase orders to expand and to pay the bills. When a large order comes in and you are unable to meet the up-front costs to fill that order, this type of financing can help you keep that business without damaging your reputation or your bottom-line.