What Is Purchase Order Financing?
Purchase order financing (or PO Funding) is a short-term commercial finance option that provides capital to pay suppliers upfront so your company doesn’t have to deplete cash reserves. Here is a representative scenario:
A business has a solid purchase order ready to fulfill, but not the funds to pay its suppliers upfront; nor is the bank willing to extend the amount of credit that would be required. Using a purchase order finance company, the suppliers are paid directly usually via a letter of credit. The business fulfills the order; with proceeds arriving after shipment is received.
Who Uses Purchase Order Financing?
Purchase order financing is designed for growing businesses with little access to working capital and/or poor cash flow. The type of business that qualifies is usually a producer, distributor, wholesaler or reseller of manufactured products.
If your company finally landed that dream order, but there’s not access to the capital needed to make it happen – you should consider purchase order financing. Learn more by reviewing our PO Finance case studies or feel free to give us a call to discuss your opportunity.
How Purchase Order Financing Works
Large and unexpected customer requests can be both a blessing and a curse. On the one hand, businesses stand to greatly increase their revenue by taking on large orders. On the other, large and unexpected orders can place a big strain on internal resources. Materials, production, manpower, and more need to become dedicated to fulfilling large orders, usually at the sacrifice of regular customer requests. Unfortunately, this lead to many small businesses turning away large orders, which results in revenue going to bigger competitors.
Purchase order financing levels the playing field by providing the capital needed to take on large and unexpected customer orders without placing a strain on regular operations. Purchase order financing is an advance in working capital which can be used for:
- Acquiring additional equipment
- Hiring additional workforce staff
- Purchasing supplies and raw materials
Once the order is completed and shipped, the customer pays the invoice, just like any other business transaction. Because purchase order financing is rolled into the amount on the invoice, the customer ends up repaying the financing, and the remainder is delivered to your business as revenue. The larger the orders, the more revenue is retained. Purchase order financing allows businesses to operate on the same level as larger competitors and accumulate growth capital quickly.
Purchase Order Financing Is Debt-Free
Not many financing solutions allow businesses to grow without placing debt on the books. Purchase order financing is a debt-free solution. Unlike traditional loans, purchase order financing can be arranged quickly, so businesses can access the funds necessary to complete large orders, instead of missing out on lucrative opportunities. Purchase order financing is more efficient than traditional lending products, and gives new and small businesses the ability to increase their bottom line, while also carving out a larger market share for themselves in an increasingly competitive commerce space.
Get Started Today
If you would like to increased revenue for your business, and have the ability to take on larger customer accounts, talk to the team at Durham Commercial Capital, and learn more about our purchase order financing program.