Growing Your Business Using Purchase Order Financing

Is your business taking the risks it needs to do thrive? If not, you could be missing out on major opportunities. Many business owners skip lucrative opportunities out of financial fear and worry about losing the working capital they need for daily operations. You can prevent yourself from becoming the same type of business owner by considering purchase order financing.

What It Is

Purchase order financing goes by many other names, including purchase order funding, production financing, pre-delivery financing, or purchase order loans. Any of these terms is used to describe a situation in which a factoring company purchases goods from a supplier on behalf of the borrowing company. They are especially useful in situations such as one business receiving a large order from another business but needing working capital to secure the supplies to complete the order. This is common among businesses that have higher rates of growth seasonally or during specific market changes.

How Financing Grows Your Company

Purchase order funding grows your business in several different ways. First, it keeps your equity within your own business, which is especially essential if you have a startup business. Next, this type of financing is easy to scale to your company’s needs. They are excellent for startup and mid-size businesses because they are small and usually easy to repay, preventing you from becoming caught up in a too-large loan that you can’t handle within the agreed-upon terms.

Finally, order financing makes it easy for you to prepare. Imagine most of your working capital is already focused somewhere else but you know that a large order is likely soon because of upcoming circumstances. Financing allows you to prepare for upcoming projects without needing to tell clients you can’t fulfill their orders in time. The results are happier clients who are likely to recommend your business to others in the industry.

The Funding Process

Now that you know how purchase order financing can benefit your company, all you need to know is how the process works. When you take out this type of loan, you can fill large orders for your customer. This happens because the lender (also known as the factor) will fulfill anywhere from 70% to 100% of the cost of your supplies. You then repay them when your client pays you. When choosing a factor, ensure you sign a contract with one that is experienced in your industry and understands your business needs so that you get the best terms possible.

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