Christmas season is a busy time for retail stores and wholesale companies, and it can get very stressful. People are in the mood to buy, and businesses must make sure that they can accommodate the demand sufficiently. Christmas sales can increase the annual revenues tremendously, but the ability to fulfill Christmas purchase order properly is not always a sure thing.
Potential Difficulties in Fulfilling Large Purchase Orders
In some ways, a large purchase order is a dilemma. It is both a risk and an opportunity. It’s an opportunity to earn more money for the year, yet at the same time the inability to fulfill a large purchase order can easily damage the reputation of your business.
The many problems associated with large purchase orders include:
- Arranging for suppliers to meet the volume required in the order
- Hiring more personnel to do extra work
- Making sure that distribution channels function smoothly
- Being able to pay for every operational expense
Essentially, you need a healthy amount of working capital to make sure that you are prepared for every eventuality.
The Problem with Traditional Bank Loans
If you’re like most small business owners, your first thought would probably be to secure some form of working capital financing from your bank. But this is not always your best option. Among the most significant drawbacks of applying for a loan is that banks take a very long time to process loan applications. After all, they have lots of clients to help, and they have to investigate your business thoroughly before they lend you the money you can use for your operational expenses.
And even after all the time you spent on applying, the chances of actually getting a loan aren’t exactly good. For loans amounting to less than $100,000 banks offer a paltry 46% approval rate. To qualify for a loan, your credit must be spectacular and your collateral should be noteworthy. And you may not always get the amount of money you need—you can ask for $200,000 in loans and the bank may offer you $40,000 instead.
Common Alternatives to Traditional Bank Loans
So what can you try instead? Today, two of the more popular options include invoice factoring and purchase order financing.
For example, you may actually have the working capital in theory, except that your previous retailers have not yet seen it fit to pay you for the supplies you have delivered them. Your suppliers may ask you to pay them in 10 days, but some retailers may pay you in full in 90 days. That means your money is tied up in those invoices.
With invoice factoring, you get your money immediately. The factor advances you the money (anywhere from 70% to 90% of the value of the invoice) so that you can use that money to buy supplies for your holiday purchase orders. The rest of the money (minus the factor’s fees) will be turned over to you once the retailer has finally paid in full.
You can also fulfill Christmas purchase order by using that purchase order to obtain financing. A finance company may also advance you a percentage of the value of the purchase order so that you can have the money you need for your supplies. With these sources of funding, you can make sure that it’s going to be a Merry Christmas for everyone.
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