Learn the Basics of Purchase Order Funding
Most companies hate to turn down business. This is especially true when a large order has been placed. Big orders often give companies an opportunity to bring in large amounts of revenue and to establish themselves in their industry. The latter can help spur future growth. However, when such a large order is placed that a company does not have the capital on hand to fulfill it, there will likely be two primary options, turn down the business or attempt to get a bank loan.
Both of these options are often less than ideal. Turning down business means that the company bypasses on an opportunity to generate capital. Doing so will also likely negatively affect future business because the customer company will likely never return. They will also probably talk to others about their experience. This can hurt the reputation of the business that was unable to fulfill the order. ‘Buzz’ in the industry may be that the business is not capable of handling large orders, which may make it difficult to obtain business down the line.
Taking out a business loan may turn out not to be an option. If the bank says no, a company can be in real trouble. The business will have to be turned down. Fortunately, purchase order funding is an alternative to traditional financing. It allows companies to generate cash without taking on debt and makes it possible for a company to fulfill larger than normal orders, even when they don’t have the money to do so.
This process is a fairly simple and fast. Most times, companies can have the money they need within fourteen days, often times within seven. If a relationship has already been established with a factoring company, the time frame will likely be closer to seven days if not sooner.
Purchase order funding works like this, if a business receives a large order that they do not have the money to fulfill, they would contact a factor (a company who buys purchase orders). That company would buy all of the supplies needed and send the company they purchased them for an invoice. The materials or products would then be shipped to the original company so that they can fulfill the order. The factor would then receive a portion of the profits.
This allows businesses who could not afford to fulfill an order on their own, the ability to do so without going into debt. It is also advantageous because unlike bank financing, which relies on the creditworthiness of the business, as long as the supplier has good credit, purchase order funding is an option. If they do not, then it isn’t.
Manufacturers, importers, distributors, wholesalers, and exporters are all great candidates for purchase order funding. Many companies that sell physical goods will find purchase order funding to be a good option when they don’t have the capital to buy needed materials or products.