After receiving a big order, your business will want to celebrate. If you don’t happen to have the money on hand to order the materials for the order, the celebration might come to a halt. This is a problem that’s more common than you think. A business secures a large order, and then can’t afford the materials to fulfil it. When this situation comes up, you’ll have to figure out how to purchase materials or risk losing the order to a competitor. Purchase order financing can be a great option if you find yourself in this predicament.
What is purchase order financing?
Purchase order financing is an alternative lending service that allows you to borrow the money your business needs to make a big purchase from a supplier to fulfill an order from a client. When the client pays your business for the sale, you pay back the lending company and keep the profit you make on the order. This type of funding can be beneficial because you get the materials you need to fill your order without having to pay out of pocket. In order to get approved for this funding you’ll need to provide proof of a valid customer order that meets the lending company’s requirements.
What are the benefits of purchase order financing?
One major benefit of purchase order financing is that it can help your small company get on the map. Most of the time, businesses that are just getting started don’t have much capital saved up and usually can just get by during their early years. If they manage to secure a big order that can lead to a hefty profit and good business, they might find themselves struggling to fulfil the order. With purchase order financing, however, businesses can obtain enough money to buy the supplies they need.
Another advantage is that, unlike traditional lending, businesses don’t need to have exceptional credit or put up a substantial amount of collateral to get approval. Similar to invoice factoring, the purchase order financing is based on the already secured order and the customer that will be paying for the service or products. Building corporate credit can be a struggle in the beginning, so this can be a serious benefit to younger and smaller companies.