Purchase Order Finance for a Service Company

Purchase order finance for a service company is not really a common option that such businesses consider. Usually when speaking of purchase order finance, it applies to the buying and reselling of goods. Your client wants 1,000 women’s handbags and is willing to pay $100,000 for the entire order if you can deliver them on schedule. Meanwhile, you have suppliers for the handbags which will cost you a total of $50,000. But if you don’t have the resources to pay for the items, a lender can just pay for them so you can fulfill your client’s order.

You get your money when the customer pays the lender. The lender takes the money it spent for the handbags and then gets its fees. If you invoice the customer, then you may also use factoring in conjunction with the PO funding. This is when you get about 80% of the amount of the invoice right away from the lender, and the lender gets another fee for the factoring service when the customer pays in full.

How Does Purchase Order Finance for Service Company Work?

If you are a service company, then purchase order finance can help you in one of two ways. If you are a solo operator and you’re tasked to perform a service, you may need to get PO finance if the service entails the purchase of supplies or the rent of equipment.

For example, let’s say you are a house cleaning service. You may need to buy some cleaning supplies like detergent, while also renting equipment like vacuum cleaners and steam cleaners. If you can’t afford to get those things with the cash you have available, then PO finance will solve your problem.

When you need to pay for manpower, the purchase order may be negotiated to cover payroll for the specific contract (in addition to equipment and supply rent and purchases), and when the contracted service has been fulfilled you can then bill your customer just like in regular purchase order financing.

Benefits of Purchase Order Financing

There are several key benefits to purchase order financing. The first is that you won’t have to pass on any opportunity that gets you profits for your service company. In fact, if you refuse too many purchase orders for services then you may get a rather negative reputation as a company which is severely limited. With PO financing, your reputation remains intact.

In addition, you also get the cash you need much more quickly than if you rely on a traditional bank loan. Bank loans are notoriously slow to get. It’s more likely that your customer will look for another service company rather than wait for you to get the funding you need.

Often purchase order finance for a service company is necessary for growth. You may have the working capital you need to render service to your current roster of customers, but with PO finance you can expand your business and still have working capital available.

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Chris Lanchech

Hi everyone, my name is Chris and I am a junior analyst at Neebo Capital and an inspiring blogger. We enjoy speaking with business owners and entrepreneurs who come to Neebo Capital looking for cash flow solutions. Give us a call toll free at 1-888-382-3766 or Visit us online at www.neebocapital.com

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