How Purchase Order Financing Can Help Your Company Grow
Purchase order financing is a great way for companies to grow. It allows them the opportunity to expand their business without utilizing their cash stores. Companies that do not have a lot of capital on-hand to buy materials needed to complete a job may routinely have to turn work down. This does nothing to improve their financial standing but instead, is quite hurtful. However, unless they can find a way to raise money so that they can afford to bankroll new jobs, there really is no alternative. They will have to pass on projects. This is unless of course, they use purchase order financing.
Purchasing order financing is way for companies to obtain whatever raw or finished materials they need in order to fulfill an order. The process is rather simple and extremely effective. It works like this. A company will sign a contract to deliver goods to another business. If they don’t have the capital to buy materials or goods in order to fulfill the job, they may opt for purchase order financing in which case a Factor will either pay for the materials/goods outright or open up a line of credit with the supplier. This gives the company that needs the goods, access to them.
Once all of the materials for the job have been purchased, the company utilizing PO factoring (another way to call purchase order financing) will complete the job. Once they have been paid, they repay the Factor the money for the materials and then also some of the profits.
There are a number of benefits associated with purchase order financing. It makes it possible for business to instantly raise capital for needed supplies. It allows companies with no or little cash on hand to obtain the materials they need to complete a job. Companies that wouldn’t normally have the opportunity to expand, do with PO factoring.
The only drawback with this form of small business financing is that it requires a bit of profit sharing. While at first glance this may seem to be a negative, when compared to all other available options, it really compares quite nicely. If a company did not have PO factoring as an option, they would likely be forced to turn down business or use up their own cash to complete jobs. This can put companies in a perilous situation. Conversely, purchase order financing allows them to raise money quickly, keep their money in the bank and go forward growing their business. Any required profit sharing should be viewed as a partnership amongst two businesses, both benefiting the other.