Purchase order financing is a very useful financial strategy which can help your company achieve the growth you’ve been looking for. This is especially true for companies which have been steadily fulfilling smaller orders for clients, and are now being asked to take on much larger orders.
If you lack the resources to purchase inventory to satisfy those large orders, purchase order financing can definitely help you fill the gap.
Is purchase order financing right for your company?
Purchase order financing may be ideal for your company if yours is a small business that deals in manufactured goods rather than services. Your business should also have orders on which your profit margin will be at least 20%, and the customers for your orders must be fairly well-established and have good credit. If all these conditions are true for your company, and the types of orders you are receiving, then you may be an excellent candidate for purchase order financing.
How purchase order financing works
If your company really wants to come through for a customer and fulfill that large order, you can do it even if you lack the resources to make purchases from your suppliers. An alternative lender can send a letter of credit directly to those suppliers in order to pay for the inventory or raw materials which you need to produce the finish good products.
You don’t ever borrow money during the process, and it doesn’t show up on your balance sheet as debt. Once you have supplied your customer with the finished goods, that customer would pay the alternative lender, and after subtracting the purchase order financing fee, the remaining amount would be sent to your company.
When the entire transaction has been completed, you will have fulfilled a very large order and gained significant credibility in your industry. After you’ve done this several times, your status as a major player in your field will have been confirmed.
Purchase order financing with Durham Commercial Capital
We offer a variety of very useful financial products at Durham Commercial Capital, one of which is purchase order financing. If you think that this kind of financing option might work for your company, we’d be glad to discuss it with you. Contact us today, so we can inform you of the many ways which w we might be able to assist your small business.