Purchase Order Financing as a Solution to Cash-Strapped Businesses

A lot of people are getting confused with the difference between purchase order financing and accounts receivable financing. Both can be quick sources of funds to keep your business going but of course, both are running on different terms.

fast Purchase order financing
Purchase order financing is also sometimes referred to as pre-delivery financing. It is meant to be a short term way of allotting funds to your inventory that are required to complete an entire sales transaction.

 

Take this as an example; if you’re a business owner and you just have landed a deal with a huge corporation or a government agency, but you don’t have enough funds to cover the manufacturing and delivery. What will you do?  The recourse is to find a quick source of cash; otherwise, you stand losing the order and possibly create a dent on customer relationship, too.

In situations like this, business owners are looking into alternative lending solutions that have the capacity to provide them a loan in such a quick turnaround; and that’s where purchase order financing comes into play.

What is Purchase Order Financing?

Purchase order financing is also sometimes referred to as pre-delivery financing. It is meant to be a short term way of allotting funds to your inventory that are required to complete an entire sales transaction. PO financing is designed for growing businesses that have very little access to working capital or those that are suffering from cash flow issues. Mostly, the types of businesses that are qualified to take out a purchase order financing are producers, wholesalers, distributors, or resellers of manufacturing products.

 

Purchase Order Financing for Businesses with No Credit History

 

In a purchase order financing deal, the lenders will evaluate the credit history and ratings of your clients, not your company. So even if your business does not have a credit history to boast of, many lenders are still going to work with you on the deal. If your client has a solid track record in terms of payments, credits and such, then there’s a good chance that a lending company may be willing to finance your sales transaction.

 

PO Financing: How Does It Work?

 

A typical purchase order finance deal looks like this:

 

  • You scored a large business deal with a reputable client, but you don’t have enough funds to cover all the costs necessary to complete the entire sales transaction.
  • You go to a lender and apply for a PO loan. Lender checks your customer credit rating and if it passes, they’ll agree to finance your transaction.
  • PO lender issues the funds, you complete the transaction and deliver the goods to your client.
  • Once the client pays up, the PO lender collects the money, gets its share of the pie and gives back to you the remaining proceeds of the sale.

 

Yes, a chunk of the profit will have to be sacrificed, but if you really want your business to survive and honor your commitments with your clients, then opting for a purchase order financing is worth a shot.

Interested in Purchase Order Financing as a Solution for your Businesses? Click Here

 

 

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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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