Purchase Order Financing For Trading Companies
Purchase order financing is a great option for trading companies. Businesses that make goods and then sell them to other companies or retailers, may find purchase order financing to be an excellent option. It allows them to access important materials necessary to create goods, even when they do not have the money to pay for them.
Purchase order financing works like this. Businesses that have contracts with other credit-worthy business for goods, but do not have the money to fulfill them, may be able to work with a Factor to access them. A Factor will open a line of a credit at a company’s supplier so that they can purchase materials needed to fulfill an order. After they have received the materials, created the product or resold it, the Factor is paid their money back as well as a percentage of the profits. This is beneficial for a company in a number of ways.
They are able to buy materials and goods without any money of their own. When a company experiences tough times and is unable to generate capital, many times they will turn down much needed business. This creates a downward spiral. They can’t raise the money to fulfill orders and are thus forced to turn down business which would generate capital. If this is not remedied, eventually, they will be forced out of business. Fortunately, with the availability of purchase order financing, this is no longer a problem. Companies can get the money they need, allowing them to take on new jobs and make more money.
They can leverage the good credit of their customer to raise capital. PO financing is not dependent on the credit worthiness of the company seeking money from the Factor but on their customers. As a result, a really good customer can mean more then revenue but also financing.
Monies not tied up in supplies can be used for other things. When a company does not have to tie up their money in order to purchase materials, they can use it for other things such as marketing to generate more business. These monies can also be used to pay for fixed expenses.
Purchase order financing is a really good way for trading companies to pay for the materials they need to fulfill a job. If a company is low on capital, it is not necessary to stop going after contracts or accepting them. PO financing will allow them to access the money they need and then pay it back with an already secured job. It is a really great and affordable financing option.