Business owners likely don’t often think about turning down business. It was probably started to make a profit, so why would they say no to a customer’s money? However, sometimes an order is so big that the business doesn’t have enough cash flow to pay for that amount of supplies. Luckily, there’s a solution to that fortunate problem.
It’s called purchase order financing, and it’s an efficient way to increase cash flow quickly to help the business fulfill large orders. This article will explain how it works and what benefits your company can get with this unique type of financing.
What is purchase order financing?
The process works like this. A company, which in this case can also be called the borrower, receives an order from a client. If the order is big enough, the company might not have the funds needed to pay their suppliers and fulfill the order. Rather than turning the business down, though, they can reach out to a financing company, also called the lender.
Once the company can prove that they have this order in their pipeline, the lender provides the necessary financing for them to pay their suppliers and fulfill the order. Once the goods or services are delivered to the customer, they receive an invoice to pay back the financing company. After the financing company receives their payment, they’ll send the money back to the original company minus the fees charged for the original loan.
While it does take a certain amount of money to obtain the purchase order financing, it also allows the company to turn a profit on a deal that otherwise couldn’t have been fulfilled. It’s a great financial option for businesses in the manufacturing and distribution industries as well as start-ups and companies that experience seasonal peaks.
Why should you consider purchase order financing?
Protect the brand’s reputation.
Being unable to fulfill an order for a customer can cost a company business down the road. It makes them seem unreliable and unprofessional. With this type of financing option, though, you’ll never have to worry about that. No matter how big of an order comes your way, you can have confidence knowing you can get the funds needed to fulfill it.
Bad credit isn’t a problem.
A business loan is another way to receive the funds needed for large orders, but not everyone can get one. If your business doesn’t have stellar credit, you might not get the amount you need, you could be turned down altogether, or the interest rates can skyrocket. That’s not a problem with this financing, though. Since the funds are being provided based on an already existing order, the credit score of the business isn’t an essential factor for the lender.
Collections is taken care of by the lender.
Having to chase down clients for payment can be a hassle and hinder productivity. However, with purchase order financing, you won’t have to worry about that. That’s because the customer pays the lender back directly, not your company. That means the lender is responsible for ensuring payment is fulfilled. All you have to do is wait for them to send you your check.
Start taking advantage of purchase order financing today.
At NTIB Finance & Consulting, we’ve made it our mission to help your business succeed. Part of how we do that is by providing the financing you need to fulfill large orders. We can arrange financing to advance the funds necessary to get the manufacturer or importer to finish the order and ship the product to you. You can learn more about the services we offer, or book your free consultation online to learn more about how we can help you grow your business.