Purchase order financing allows businesses to leverage their purchase orders for cash (or credit) advances to their suppliers. This allows them to accept new business from clients even when they do not have the operating capital on hand to fund the job. PO financing gives companies the opportunity to grow their businesses and take on jobs even when cash is tight. There will be times when a company has the chance to accept an exceptionally large order but they may be afraid to because they don’t know how they will come up with the money to bankroll it. PO financing gives these companies an easy way to cover their operational costs. Below, we will discuss five major benefits of this type of financial arrangement.
- PO financing is not a loan: Purchase order financing is not a loan. It is essentially an advancement of funds. The purchase order finance company agrees to pay your supplier (with cash or credit) for the materials you need to complete a specific job. They will then collect on the invoice, retrieving the money they advanced you and then charge you a fee. The PO financing company gets their money back from payment by your client. Loans can get very expensive, and if your company does not have great credit or is new, they can be very difficult to obtain. PO financing makes it unnecessary to take out a loan.
- PO Financing Pays Your Supplier: It can be incredibly frustrating to have to turn down business or to have to stop going after business because you don ‘t have the money to fund jobs. This type of situation can occur because you have to pay suppliers up front for materials while most clients won’t pay for the completed job until perhaps 1-2 months later. This causes cash flow problems. Sometimes, businesses can’t afford to take on new jobs until they are paid for ones that they have already completed. Because PO financing will pay for the needed materials, it is possible for companies to accept new business.
- PO Financing allows you to take on big jobs: Big jobs will cost your company big money. You will have to purchase supplies, pay personnel and cover all related expenses. Because you won’t be getting paid until after the job is complete, on paper, it may look impossible to handle large clients. PO financing allows companies to accept big jobs (from trusted clients) because they will advance businesses the money for supplies. This gives these businesses an opportunity to experience tremendous growth from quality clients.
- PO Financing includes collections: The purchase order finance company will not only advance you the money, they will also collect payment from your client. This eases your company’s burden. After they receive money from your client, they will send it you, minus any fees.
- PO funding doesn’t require A-1 credit: One of the best things about purchase order financing is that it doesn’t require the company that uses it to have excellent credit. The finance company will however, be concerned about the creditworthiness of your client because that is where they will be receiving their money from. This makes this type of funding an excellent choice for companies with average credit.