On the face of it, the Christmas season is a happy time for many shops across the country. People are in the mood to buy gifts and spend money, and that means more profits for retailers and wholesalers. But if you own a wholesale business, you may find yourself deluged by large orders for which you don’t have the capital to buy raw materials and supplies. Fortunately, you can use your Christmas seasonal purchase orders as a way to secure the financing your need.
The Mechanics of Purchase Order Financing
It’s easy enough to acquire financing using your purchase orders. First you need to approach a finance company which offers this service. They will then investigate the authenticity of the purchase order and also evaluate the likelihood of payment by the retailer when you deliver the products they ask for.
Then they will ask for your supplier and payroll needs, and also calculate the profits you can make off the deal. If your potential profits warrant the investment according to their standards, the finance company can then jump on the deal and help. They will then open a line of credit or guarantee payment for your suppliers, up to half the volume of the purchase order. Some finance companies can even offer a larger percentage.
A schedule can then be made so that the finance company can make sure that the delivery will come through as promised. All payments come through the finance company. When you deliver your goods to the retailer, the finance company collects the payment.
Usually this is not cash. Instead, you have an account receivable detailing when you will get your money. This can be as long as 30 or even 90 days. Your financer can also forward a percentage of the profits once the invoice has been processed. When the retailer finally pays in full, your finance company gets back the money they used to pay your suppliers plus a fee for their services. Your finance company can then forward the rest of your profits to you.
Why Choose Purchase Order Financing?
Most of the time, you choose this option because the bank won’t give you a choice in the first place. Banks are not exactly in the mood to give out loans to small businesses, even if you do have excellent credit or even if you have ample collateral. That’s because they don’t feel that they have enough to gain out of the deal.
But with purchase order finance companies, you actually have the option of getting some financing for every large purchase order you receive. The application process for this type of financing doesn’t take as long as a traditional bank loan and the approval rate for large orders is much higher as long as you can demonstrate a healthy profit margin.
With this type of financing, you do not have to refuse Christmas seasonal purchase orders because of a lack of funds. Each of these orders can then be used to increase your profits and grow your business.
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