Purchase Order Funding: A Tool to Help Your Business Grow With Out Loans or Debt
Purchase order funding can be a powerful tool for businesses. This sort of financing allows companies to generate money for growth without having to apply for a loan or take on new debt. The first thing that many businesses do when they are faced with a cash flow problem is to attempt to take out a bank loan. Sometimes, this is an option, other times it is not. If a business does not have excellent credit or have not been operating for a certain amount of time, they will find it very difficult to obtain a loan. Thankfully, this is not the end of the matter. Purchase order funding makes it possible for just about any company that has clients with good credit, to get money without going into debt.
The purchase order funding process is a fairly simple one. After a company has gone through it once, it gets much easier. The speed and ease in which a business can obtain funds, makes purchase order financing ideal for businesses that need to come up with money quickly. The process can allow companies to generate cash in only 24 hours. A business would be hard pressed to come up with an alternative source of money without paying heavily for the privilege.
In a purchase order funding deal, a company known as a factor, will buy or issue a letter of credit for whatever materials a company needs but isn’t able to afford or do not want to pay for with their own money. This often involves the purchase of raw materials needed to manufacture a product to sell to individuals or other businesses. These materials (or products) will be shipped to the business working with the factor. They will then manufacture the product and send it to the customer. The factor is paid after the products have been sold. The best thing about this arrangement is that it can be done without a company having to take on any new debt.
This type of financing allows companies to fulfill orders that they may not have been able to afford on their own. As a result, they don‘t have to turn down large orders which could potentially provide them with badly needed money or that could help take their business to the next level. In today’s economy, it would be unwise to turn down any business a company can generate.
Today, it is extremely difficult to get a loan and perhaps even tougher to pay back whatever loan a business can get, due to the sluggish economy. However, in order to continue to do business, cash is a necessity. For companies that sale physical goods, purchase order financing is a great option.
Choosing the right factoring company to work with is extremely important. Partnering with the wrong type of factor can be very costly for a business. Therefore, it is vital that any business looking to use this type of financing, take their time and investigate thoroughly all companies they are considering working with. Time is better spent being careful and choosing the right factor then unraveling a messy and potentially expensive situation.