Purchase Order Finance Lenders: Better than Credit Cards

Using a credit card is one of the most popular options for getting additional finance. Everyone’s familiar with them (more or less), and for that reason even small business owners are using credit cards (personal or business) to finance their operations.

The National Small Business Association reported that in the years 2007-08, about 44% of small business owners used credit cards for financing.

But there are other alternative options for small businesses when it comes to financing. Purchase order financing may work in your case, and you may find that with the help of purchase order finance lenders you may actually help your company get more business.

How PO Financing Works

The concept of PO financing is very simple. If you have a sizable purchase order but do not have the capital to fulfill it, then purchase order finance lenders can step in and provide you with the financing you need.

They pay your suppliers so you can fulfill the purchase order. You may get only about 50% to 70% of the value of the purchase order towards paying your supplier. When your customer pays up in full, you then get the rest of your money, minus the fees charged by the lender.

Why PO Financing is Better than Using Credit Cards

In some ways, PO financing is better compared to using your credit cards.

  1. Using PO financing doesn’t affect your credit score. Using your credit cards can really harm your credit score, especially when you max out and have trouble paying your debt. In fact, credit card misuse is one of the more common reasons for plummeting credit scores. Too many people don’t know how to use them properly.

But with PO financing, the deal doesn’t even qualify as a debt, and therefore it doesn’t affect your credit score. PO financing is more like getting an advance on the eventual value of the purchase order.

  1. You pass on the risk to the purchase order finance lenders. There are many possible reasons why the deal may be successful. The customer, for example, may refuse to pay for any number of reasons. They may say that the items were not in the quality they want, they may declare bankruptcy, or they may just simply change their minds.

But that’s the lender’s responsibility. They’re in charge of the collection, not you. And if they are unable to collect, you don’t have to return the advance you got for paying your suppliers.

Now if you used credit cards, you have to pay back what you borrowed, even if the customer didn’t pay up.

  1. PO financing comes with reasonable costs. Even though the risk is all on the lender, the fees for the advance are actually comparable with the rates charged by credit card companies. And what’s more, you usually get more funds to pay for suppliers through PO financing than what you can get from credit cards.

PO financing may only be a short term solution, but it’s better than not being able to fulfill a purchase order at all. You forge better relations with your customers by providing them what they need, and you earn a profit in the end. That’s much better than not getting the business at all.

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