Purchase order financing is a solution for any business lacking cash flow to purchase inventory to meet customer orders. If you just started a business and received orders that you do not have, a purchase order financing company can help you meet those demands rather than turning away a customer. The steps to follow in purchase order financing include:

Receiving a purchase order- a customer submits an order which helps you determine whether you need help from a purchase order financing company or if you will manage.

Estimation of cost by the supplier- request a price estimation from the supplier and determine whether you have enough cash at hand to get the products.

Applying for purchase order financing- this is when you lack the funds to purchase the order. A lender will approve up to 100% of the supplier cost, but it also depends on whether you and your customer meet the requirements needed.

The supplier gets paid- after you have qualified, the financing company will pay the supplier. If you have qualified for only about 80% of the purchase order financing, you have to find an alternative to cover the difference. The supplier will then deliver the goods to your customer.

The next step is to send an invoice to your customer. If the customer wants to make payments over time, a lender may buy the invoice at a discount from you. This is called invoice factoring, which helps you get your money fast.

The customer will then directly pay the purchase order financing company, and the financing company will forward the money to you after deducting fees.

Advantages of Purchase Order Financing

They are easy to qualify for, especially when getting approved for a traditional or SBA loan is difficult.
You do not have to sign any personal guarantee when taking this loan, hence protecting your personal assets.
It is ideal for startups, especially when you are having a hard time getting approved for a loan. You will quickly meet all your customer needs till your business is on its feet.

Disadvantages of Purchase Order Financing

The fees can be high compared to an SBA or conventional loans
You are not guaranteed 100% financing. Most of the time, you get about 80% -90% financing and take care of the rest on your own.
The service industry cannot use this type of business since one requires physical goods to qualify for this loan.

Purchase order financing helps you grow your business, especially when you are cash-strapped. If you are in such a position and want to seize an opportunity, reach out to Increase Lending and see how they can help your business.