No matter how successful your company is, you’re going to eventually experience slumps in business. While some of those slumps are short-lived, others can last for weeks, making it hard for you to satisfy customers. Though you can always take out a loan to help cover the cost of your products, there are other options. Purchase order (PO) financing allows you to borrow the amount needed to fulfill orders without dealing with the hassle of a long-term loan. Here’s what you need to know.
How It Works
When you take out a traditional loan, the lender sends the money to your bank account. You can then use the money to pay your supplier so you can fulfill your clients’ orders in a timely manner. With PO financing, you don’t receive the money from the lender. Instead, they send your supplier the money needed to fill your outstanding orders.
Once your customer gets their order, they don’t pay you. They pay the finance company. After the finance company gets their money, all you have to do is pay the fee for the advance. When all outstanding fees are paid, the debt gets settled and you’re good to go.
Is It the Right Choice for You?
Purchase order financing is an ideal way to cover the cost of outstanding orders when money is tight. However, it’s not the right choice for every situation. If you need money quickly, you’ll want to look for a different loan option. PO financing applications can take several weeks and the last thing you want to do is delay fulfilling your customers’ orders. Further, you can only use this type of financing if you have outstanding purchase orders to fulfill. This means you won’t be eligible for PO financing if your business is service-based.
You’ll also want to make sure you’re comfortable with the fees and terms the financing company offers before you agree to the deal. Depending on the company you choose, fees can be high and you could end up paying more than you can realistically afford. The best thing you can do is shop around and get quotes from several lenders before you make a decision. This way, you’ll be able to choose a company that offers the most affordable terms.
Purchase order financing is a great choice for businesses that need a little extra help covering the cost of order fulfillment. Once you apply and are approved, you won’t have to worry about disappointing your customers or falling short on deliveries.