Boost Your Business Using Purchase Order Financing
Resale business owners often find themselves with the problem of a larger purchase order than they cannot fund the supplies for. This is a good problem to have, but only if you can find the cash to fulfill the order. Read on to find out more about purchase order financing and how it can boost your business.
What is Purchase Order Financing?
In the simplest terms, PO financing is when a company puts its purchase orders up as collateral to pay suppliers so that those orders may be fulfilled. PO financing is not a loan in the traditional sense, and therefore tends to be easier to qualify for. When you receive a large order, the PO financing company pays your supplier, allowing the order to be fulfilled and you to invoice your customers. On average, the cost of PO financing is 3% per 30 days, and the rate is usually prorated after 30 days. This rate could potentially be higher or lower depending on various factors set by the financing company. Once the order is supplied and the invoice paid, the PO financing company takes its fees, leaving the remainder of the profit for you.
What Are the Benefits of Purchase Order Financing?
Purchase order financing comes with numerous benefits, especially for new or smaller businesses. The structure of this type of financing makes it available for companies without much business history and start-ups who would otherwise be denied a conventional business loan from a bank. With PO loans, the creditworthiness of your customer can be a bigger determining factor than the credit of your own business, making this type of loan feasible for businesses with little or no credit history. PO loans also usually have a quick turnaround. Most of the time, the money can be made available in a few hours to just a couple of days. This is a distinct advantage over waiting weeks for the underwriting of a loan. Finally, with PO financing, the only collateral needed is the purchase order itself. There is no need to tie up any other business asset to obtain funding.
If your company has found itself in need of cash to fulfill a large purchase order, purchase order financing might be just the thing to help complete your order and grow your business. With benefits that make this type of financing ideal for new businesses, such as quick cash and no collateral, PO financing can easily satisfy your business financing needs.