Purchase Order Financing: The Easy Way To A Steady Cash Flow
Purchase order financing is an easy way for companies to generate steady cash flow. It enables them to access the materials they need to fulfill outstanding orders. When businesses are low on cash, it can be difficult for them to service their existing clients and it is sometimes impossible to spend the money necessary to attract new business. This is a terrible position to be in. Without incoming cash flow, a company is unable to stay afloat. If they don’t have enough money to finance present or future jobs, they will eventually be forced out of business. Purchase order financing (PO financing) is an excellent option for companies that find themselves in the aforementioned predicament.
While PO financing won’t provide a company with capital (the name is a bit misleading in this regard), it will allow them to buy the materials required for jobs they have already managed to secure. This frees them up to work and generate valuable income. It is important to note that there must be a contractual arrangement in place other wise PO financing is a no-go.
Purchase order financing requires the company to work closely with a Factor. The Factor will open up a line of credit with the company’s supplier so that they can have access to the materials needed to fulfill their contracted order. They may also opt to buy the materials out right. After this has been done, all materials will be shipped to the company who will manufacture the product and sell it. Once they have done so, they will give the Factor a portion of the profits. There are significant benefits to this form of commercial financing. We will discuss a few of them below.
Frees Up Cash For Other Uses. When a company chooses to use purchase order financing, they are able to use their cash stores for other purposes, such as advertising, paying bills and fulfilling other jobs. They may also choose to save it. Each of these are great ways for businesses to make good use of capital, even that which is not their own.
Provides Businesses With a Steady Source of Cash Flow. PO financing is a really great steady source of cash. As long as a company qualifies, they are able to tap into the cash sources of another business, using it for their own benefit.
This is a Fairly Easy Method of Capital Generation. The exact requirements a company must meet to utilize purchase order financing will differ based on the Factor. It will be necessary for a company to determine what these are. A pretty uniform requirement is that the company has an iron-clad contract with their client.
Purchase order financing is an excellent option for companies that either do not have a lot of cash on hand or who would rather keep it in their bank account. It allows them to have access to another business’s funds which can be used to fulfill orders for their customers.