Purchase Order Financing
PO financing can be a good option for businesses with a cash flow shortage that still want to be able to complete an influx of orders.
Introduction to Purchase Order Financing
Purchase order financing (PO financing) provides businesses with the capital needed to pay suppliers for goods necessary to fulfill customer orders. This financing method is beneficial for companies facing cash flow shortages or those experiencing rapid growth and large orders. Instead of taking out a traditional loan, PO financing enables businesses to leverage their outstanding purchase orders to obtain funds, allowing them to fulfill orders without depleting their cash reserves.
How It Works
- Receive a Purchase Order: Your business gets a large order from a customer.
- Determine Costs: Calculate the costs required to fulfill the order.
- Apply for Financing: Submit an application with the purchase order and supplier's cost estimate.
- Approval and Supplier Payment: The financing company approves the application and pays the supplier directly.
- Goods Delivery: The supplier ships the goods to your customer.
- Invoice the Customer: After delivery, invoice the customer for the order.
- Customer Payment: The customer pays the financing company directly.
- Fee Deduction and Balance Transfer: The financing company deducts its fees and transfers the remaining funds to you.
Qualifications for Purchase Order Financing:
- Strong Customer and Supplier: The creditworthiness of your customer and the reliability of your supplier are crucial.
- Large Orders: Ideal for businesses with significant orders that need upfront capital to fulfill.
- Business Financials: While less stringent than traditional loans, your business financials and credit history will still be considered.