Purchase Order Financing Overview

Purchase Order Financing Overview
Knowing the ins and outs of​ purchase order financing is​ an​ asset to​ almost any small or​ medium sized business owner .​
In the sections below you will learn just exactly what purchase order financing is, the benefits, drawbacks, who can benefit the most from it, and would be likely to​ qualify for it .​
What is​ purchase order financing?
purchase order financing is​ another way to​ get a​ loan for the capital you need to​ finance the supplies, production, and shipping of​ a​ product after you have received a​ purchase order from a​ buyer .​
Once you produce the finished goods and are paid, you can then pay off your invoice to​ the company who provided you with funding .​
This is​ a​ perfect solution for small start-up businesses who have orders coming in​ but don't have the finances required to​ order supplies, pay their workers, and ship the finished goods .​
This would also be a​ great opportunity for a​ small to​ medium sized businesses who have found themselves with a​ sudden large customer jump or​ are graced with a​ very large order .​
Who can benefit from purchase order financing?
- Purchase order financing is​ great for small to​ medium sized businesses who usually do not have the funds for large orders that could sky rocket their sales and turn their product into a​ household name .​
Image pitching your product to​ a​ major retailer, receiving an​ order from them, and then not being able to​ produce the goods needed because you are short on funds .​
purchase order financing could save you from this heart-breaking, and business-breaking, blow .​
- a​ company who has received an​ order so large that they would need a​ six-digit loan .​
a​ purchase order financing company is​ not there to​ finance every single order so that a​ business does not have to​ spend any money up-front, it​ is​ merely a​ means for businesses to​ get the funds they need for an​ order that would otherwise be out of​ their reach financially .​
- Only those who are reselling an​ already made product that they have to​ purchase in​ order to​ send to​ the buyer, such as​ drop shippers, or​ are producing a​ product to​ sell may be eligible to​ receive purchase order financing .​
For example, if​ you are selling a​ service, you would not qualify to​ receive purchase order financing .​
Although it​ may take capital you do not have to​ hire employees to​ perform the service, it​ would still not qualify under most company guidelines .​
What are the drawbacks of​ purchase order financing?
There are few drawbacks to​ receiving purchase order financing, however, there is​ one major qualification that could potentially stand in​ your way .​
When a​ company grants you funding, they assume they will be paid after your customer receives the finished product and pays you .​
Because of​ this, many funding companies will check the credit of​ your buyer(s) to​ be sure that you will not get ripped off and be left without the money to​ pay your invoice .​
Purchase order financing companies are not only taking a​ chance on you, they are taking a​ chance on your customers as​ well .​
They are the ones with the real risk if​ the deal goes sour .​
Knowing that your customer is​ credit worthy gives the company the peace of​ mind to​ lend to​ you .​
What to​ look for in​ a​ purchase order financing company
You should find a​ company that is​ right for you .​
These guidelines may help you better understand what type of​ company you should apply with:
- Find out what their minimum and maximum funding guidelines are to​ ensure that they meet your financial need .​
If a​ company only funds loans that are in​ excess of​ what you are looking for or​ has restrictions that are less than what you need then you are best moving on to​ another company .​
- Find out what other eligibility requirements they have to​ ensure that you do qualify under their guidelines before you waste any time applying for their loan .​
- Find out what length of​ time you have to​ repay the loan and check to​ see if​ it​ meets with you production and billing schedules to​ ensure that you will have the funds in​ time .​
- Once you have found a​ company that works for you, make sure that they have a​ fee or​ interest rate that your company can both afford and be comfortable with .​
In the world of​ loans and financing, purchase order financing may be a​ small business's best ally .​
They will usually have repayment terms that allow time for production of​ a​ product and it​ is​ the fastest way to​ receive financing without losing any investment in​ your business .​
Also, since they will check into the credit worthiness of​ your buyers, they may save you from producing a​ product for a​ deadbeat buyer .​
All in​ all, purchase order financing is​ a​ way to​ finance a​ large order that may get your product into the hands of​ a​ top notch retailer.

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