If you are in the textile business, then chances are you are familiar with factoring. It’s become the norm in the industry, although nowadays large banks have gotten involved as well. But now you don’t have to rely solely on your invoices to get the advance you need for your working capital. You can also use your purchase order as well.
Essentially, the textile PO funding company will treat the purchase order as a sign of an eventual payment, similar to an invoice. The only difference is that in this case you can get the money far in advance.
Here are its advantages:
- First of all, getting a textile PO funding can be much easier than getting a loan from a bank. This is especially true if you have a low credit rating. With PO funding, the focus is on the customer who made the purchase order. Does it have the ability to make the payments for the order? And does it have a good history of actually making payments?
What will be required of you is some proof that you can actually fulfill the purchase order according to the specified terms. Can you meet the quantity and quality specified? Can you meet the deadline?
- The application process for PO funding is also very speedy. This is necessary, because purchase orders have deadlines and you don’t want to waste time. Going through bank loan applications can take forever, and it’s especially frustrating when they often end in a denial. That’s also another plus here: the approval rate for PO funding is much higher.
- When you don’t have the working capital to meet the requirements of the purchase order, the PO funding can provide that money. That’s one of the most common problems with invoice factoring. What if you don’t have enough accounts receivable to fund the next projects? With a purchase order funding, that’s not a problem anymore. Invoice factoring involves getting advance on a payment from customers; PO funding is getting the working capital you need so that you can actually get an invoice from your customer.
- Some of your suppliers may be from overseas, and the regulations can be tricky. But many PO funders have an international presence, and they are very familiar and experienced in dealing with overseas manufacturers.
How PO Funding Works
Let’s cite an example to explain how it works. Let’s say you have an order for $200,000 worth of garments. Now you need to fulfill this order by getting materials from various suppliers. If the costs amount to $100,000 then you may get that money from the lender. When the retail chain pays you in full, you get your profits minus the cut from the lender, which is usually anywhere between 3-6%. Even at 6%, you’d still make a profit, one that you probably wouldn’t have made if you didn’t opt for PO funding in the first place.