Using Purchase Order Financing for Working Capital
Your ability to take on large or unexpected orders can fluctuate a lot with your cash flow, and finding the right funds in the right places can take time. That leaves your customers waiting and leaves you vulnerable to missing or delaying the next large order. If you need the funding for inventory or for manufacturing pre-sold goods, you need to look at how purchase order financing can help.
A purchase order financing company will make direct payments to your suppliers, so that you can receive the raw materials, sub-assemblies or inventory you need to fulfill your purchase order. That’s why purchase order financing can be highly advantageous for your company, and can help get you take on larger projects or take on multiple projects.
Although purchase order companies rely on your customer for repayment, they also want to know that your gross margin is large enough to cover the financing costs and that you have a history of delivering to your customers on time and as ordered. For you to get approved for this type of financing, the financing company will look at your business performance and order history and the ability of each of your suppliers to deliver.
By filling out a large order, you are doing more than simply giving a customer what they ordered. You are establishing yourself as a larger, more compelling competitor in your industry. If you have to turn down a large order, your company’s reputation may suffer. The client may never even consider you again if you show you cannot handle the demand.
Purchase order financing is more flexible that traditional lending. Banks generally won’t lend against purchase orders without some other form of collateral, and in most cases the approval process takes weeks or months. By contrast, a purchase order financing company mainly needs only the purchase order itself as collateral, and with this in hand, it can then setup payments to your suppliers in a short period of time.