Purchase Order Factoring: A Solution To Finance A Large Purchase
Purchase order factoring can be a very good way for a company to finance a large purchase. The everyday costs that are associated with running a business can be draining enough on a company’s finances. Therefore they may not have the cash on hand to pay for larger purchases. If this prevents them from obtaining a very important piece of equipment or something necessary to run their business, this can be a huge problem. It may prevent them from growing or from handling their everyday operations. If they invoice their clients, this puts even further strain on a business because they will have to wait until they are paid before they are able to purchase something that the company wants or desperately needs. Purchase order financing is one way to solve this problem.
Purchase order factoring involves a company selling their purchase orders at a discounted rate, to a Factor at generally up to 90% of their value. The Factor will then collect the money owed on the invoices. They will return this money to the company they originally bought the invoices from. Their fee is subtracted from the collected invoices. This form of financing can be very advantageous and can be a great way for a company to raise the money necessary to make a large purchase, for a number of reasons. We will discuss a few of them below.
Purchase order factoring is a way for a business to raise money without taking on new debt. A business that has a great deal of debt is always at risk of failing. To avoid this, it is important to find alternative ways to find money when it is needed. If a company is interested in making a large purchase and don’t have the capital available to do so they might consider taking out a business loan but if they don’t have to they shouldn’t. Many companies won’t be able to get a loan. They may have bad credit, too much current debt or haven’t been in business long enough.
Purchase order financing also makes it possible for a company to finance a large purchase without depleting their current financial stores. When spending a great deal of money will make it difficult or even impossible to cover a company’s current debt and financial obligations, obviously it wouldn’t be a wise move to do so. A better option may be to leverage orders which have already been made but not collected on, for cash, i.e. purchase order financing.
The purchase order factoring process works really fast. Most Factors are able to pay companies for their invoice orders in only 24 hours. This is pretty incredible. A company can have the money that they need to finance a large purchase in about a day. If a business doesn’t yet have a relationship with a Factor, they may have to wait up to seven days before they receive payment for their purchase orders. However, this is not really a lengthy amount of time and would likely take far less time and effort then applying for a bank loan.
PO Financing – How it Works & Benefits
Purchase order financing is an effective form of business financing in which money is advanced against a purchase order for finished goods or value added products to finance the manufacturing of the item. Here are some articles you may find useful in order to fully understand how purchase order financing works and how it can help your business.