Sometimes businesses don’t have the cash flow to fulfill purchase orders and keep business moving forward. Fortunately, there are financing opportunities available that can help. One option for your business may be purchase order financing. Knowing what purchase order financing is can help you decide if it is the right funding solution for your organization.
What Is Purchase Order Financing?
Purchase order financing provides funding for businesses that need cash flow to provide inventory and complete customer orders. The financing company provides funding to manufacture and deliver the products to your customers. The customers then pay the purchase order financing company directly. Once they deduct their fees, they send the remaining balance to your organization.
How It Works
Purchase order financing can be difficult to understand, especially if you are new to it. Here is a break-down of the process:
- A purchase order comes from a customer.
- You get an estimate from a supplier in order to fill the customer’s order.
- You seek purchase order financing.
- The financing goes to the supplier from the financing company.
- The customer receives the goods from the supplier.
- The invoice (sent by you) to the customer is paid to the financing company.
- The purchase order financing company deducts their fees and sends the balance of the paid invoice to you.
Pros and Cons of Purchase Order Financing
As with any financing option, there are benefits and disadvantages of purchase order financing.
- Easy to get approved
- No personal guarantee required
- Good solution for startups
- Funding is flexible
- Can have high fees
- 100% financing not guaranteed
- Unavailable for service businesses
- Short-term solution
- Customers work with a lender
Purchase order financing can be a good way to give your business cash flow to complete purchase orders. By working with a purchase order financing company, you can fulfill your orders so that your business can keep moving forward, one customer at a time.