Growing businesses sometimes encounter the dilemma of receiving large orders but not having the funds or resources at hand to pay for them. They can pass on the orders, but in doing this, they are giving up on unique opportunities that may not come again. Alternatively, they can obtain some sort of funding that will enable them to accept and fulfill the orders. Here is some information on how purchase order financing, or PO financing, can help your business fill major orders that you thought were beyond your means.
The Basics of Purchase Order Financing
PO financing ensures that you will be able to accept orders of any size that you are offered. It is not a standard loan through which you are given cash in hand to meet your financial needs. Instead, it is funding that is specifically focused on paying suppliers and enabling customers to receive the goods that they have requested.
The Process of Purchase Order Financing
To apply for PO financing, you must already have a purchase order ready when you approach the lender. Upon approval, the lender contacts your supplier to find out the cost of the goods. The lender pays the supplier directly, and the supplier completes the order and sends it to the customer. You invoice the customer, but the customer pays the lender instead of you. After the lender has taken out its fees, you receive the balance of the payment.
Qualifying for Purchase Order Financing
To be approved for PO financing, you need to have a purchase order that has already been submitted by a customer. It is not enough that you have received a proposal or you are soon to be sent purchase order. In addition, lenders are more likely to approve PO financing for established companies rather than startups. The lender may also require that there is a sufficient profit margin so that it is sure to get paid and you will also be able to make some money.
For more advice on PO financing, get in touch with Commercial One Group.