Invoice factoring has long been a mainstay in the apparel business. If you are a distributor, when you supply clothing items to a retail store they can opt to pay you in 30 days—if you’re lucky. Sometimes the waiting period can be 45, 60 or even 90 days. Since you need the revenue from the sales as working capital for your next deals, you can partner with factors which provide immediate financing for these accounts receivable. But sometimes even that kind of financing isn’t enough, but with PO finance apparel companies can get the working capital they need. Purchase order financing is considered as a creative way to raise capital in order to meet a new large order.
What is PO Finance?
Essential, in PO finance apparel companies can get the money they need by using the purchase order as a form of collateral. The lender considers the credit of the customer who made the purchase order, and then calculates if your profit margin warrants the use of purchase order financing. If your customer, such as a well-known retail store, has a good reputation for paying their dues and if your profit margin is high enough, then you get the line of credit you need so that your supplier can provide you with the goods you require.
When Should You Get Purchase Order Financing?
In most cases, before applying for PO finance apparel companies should still try to get a traditional bank loan. Yet in reality, very few banks can get you the money you need quickly enough. Either the bank will be very reluctant to give you the funding you need, or their entire loan approval process is so slow that it won’t give you enough time to fill the order within the schedule indicated in the PO.
So if your company has a very small window of opportunity and you have no time to waste, you may as well apply for purchase order financing immediately. The process goes by more quickly, and this gives you the time you need to meet the specified delivery schedule requested by the customer.
Other Definite Advantages of PO Financing
The advantages of PO financing are well-known:
- You have a better chance of getting the money you need compared to securing a loan from a bank.
- The entire process is much quicker, so you don’t waste time in what may turn out to be a futile effort to gain the financing you need.
- The amount you need is based on known factors specified on the purchase order.
In many cases, when you apply for a loan you try to estimate the amount of money you need for working capital and for business growth. But with PO financing apparel companies can get their money on a “as needed” basis. Since you can easily calculate how much you need to have to pay your supplier, you don’t have to make a mistake in the amount of money you can ask for.